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American Morning
World Markets Plunge; Obama Slams McCain on Mortgage Plan; President to Address the Nation on the Economy
Aired October 10, 2008 - 06:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(BEGIN VIDEO CLIP)
JOHN ROBERTS, CNN ANCHOR (voice-over): Breaking news. Overseas markets plunge. Could it cost you even more money today?
And the aftershocks in small-town America.
UNIDENTIFIED MALE: Wall Street which affected Main Street, and we're Main Street.
ROBERTS: And no one saw this coming? The plunge and the politics on this AMERICAN MORNING.
(END VIDEO CLIP)
ROBERTS: And good morning, thanks very much for being with us. It's Friday, it's the 10th of October. We are crossing our fingers that this is not another Black Friday, but things are not looking good in the overseas markets right now. Everything down from Asia through Europe and looking like it's going to be down here in the United States as well. No end in sight for the crisis that we're seeing both in the credit markets and on the stock market.
KIRAN CHETRY, CNN ANCHOR: That's right. And so, we're trying to put in perspective today, offer some advice about what you should do. Jitters certainly high. In fact, Dow futures now down 306 points this morning.
Financial markets across Asia and Europe taking a major hit as well. Asian stocks plunged overnight. In Japan, the Nikkei index closed down at 9.6 percent. That is a steep, steep slide, but not the first time we've seen it this week which is all the more alarming.
In Hong Kong, the Hang Seng market closing more than seven percent down. European stocks also sharply lower. London's FTSE is off more than seven percent. All this after a late selloff sent the Dow literally over a financial cliff the end of the afternoon yesterday, a five-year low, a 679-point loss.
Meantime, Treasury Secretary Henry Paulson is working on several fronts to stabilize credit markets, get the credit flowing through the banks again. Nothing has worked so far. President Bush will address the nation again this morning about the economy. This is ahead of his meeting in Washington tomorrow with the world financial leaders.
Our Christine Romans is "Minding Your Business" this morning with more on exactly what we should make of this this morning.
CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: You know, October is traditionally a horrible month, but something terrible happened this October.
ROBERTS: Now, what is it about October?
ROMANS: I'm not sure. But you know, I'm going back to the record books and take a look again. But October is turning out to be really horrific for stock investors, indeed. Yesterday the Dow, I mean it lost maybe 300 points in half an hour. It really did just sort of go off a cliff there toward the end of the day; 8,579 was the closing level on the Dow Jones Industrial Average. The carnage in the market just in the past week, $2.3 trillion wiped away from stocks, down 17.4 percent in just a week.
For people who are holding on there, still heavily in stocks in their 401(k) or any kind of stock portfolio they have, it's been a really, really rough go of it here. Your year-to-date, the Dow down 35 percent.
I mean, think of that. In the stock market, a third of the value of the stock market wiped away in just a year. When you look at bear markets, this is something that's interesting. This is what happens in bear markets.
The question is, is there a lot more to go? Are you bailing out at the end if you get out now? Is it going to get worse? Is this different than a normal bear market because we're talking about an international concern about the banking system?
There are a lot of big questions here. How much of success of the recent -- you know, the economy has been credit driven and is that rational? I mean, is there a fundamental rethink happening here? A lot of big questions this morning, and it's going to be an ugly Friday, it looks like.
ROBERTS: Just yesterday as the market was going down, some of the analysts were saying, well, it's a holiday, many people were taking the day off. It was Yom Kippur so there wasn't the normal, you know, action on Wall Street, that maybe would have mitigated the losses. But looking at what's happening overseas now, and where the Dow futures are going, it doesn't seem to matter that it was a holiday.
ROMANS: That's right. And it's feeding on itself. You know, it's a bad sentiment overseas and then it spreads to Europe and then it comes back to the U.S., and then it sets the tone again and it's like all going around. I mean, we're going to need a nice couple of day this weekend for everyone just to take a little --
(CROSSTALK)
CHETRY: Good thing the market actually -- whatever happens it can't get any worse after 4:00 p.m. today hopefully. But I want to ask you about this, consumers also cut back sharply on spending. In fact, they say that it's going to be the first quarterly decline in 17 years when they tally up the third quarter. And some of the Democratic leadership in Congress is saying maybe we need another much larger stimulus plan. Would that be the answer at this point?
ROMANS: Spending more money, look at how much money we've committed to this. The Fed has injected hundreds of billions of dollars into the banking system for liquidity. We already had a huge stimulus in the spring.
There is support for a second stimulus package that I don't think would include a rebate check but would include some other things. You know, Nancy Pelosi, the House Speaker, was kicking that around maybe last month before this whole thing blew up again.
CHETRY: Barney Frank is saying we have to prop up consumption.
ROMANS: Well, some would argue that propping up consumption is what got us here in the first place.
ROBERTS: And Pelosi now considering calling Congress back to deal with that.
ROMANS: There's been so much money thrown at it. Every time we throw money at it, the stock market goes down another 500 points.
ROBERTS: All right. Christine, stay with us this morning. Plenty to talk about. Plenty of jittery investors, too.
Across the pond this morning, the nosedive on Asian and European markets triggering new fears of a global recession. CNN's Richard Quest is watching developments in Europe for us this morning. He is in London.
What's it looking like there in the FTSE, the DAX and the French markets, Richard?
RICHARD QUEST, CNN CORRESPONDENT: Oh, yes. Well, I would advise you to a virtual gaze if you are of nervous disposition this morning. The European markets opened down the best, well, actually over 10 percent. They've only recovered a massive 0.02 (ph).
Basically, London is off about eight percent, John. Frankfurt and Paris are off more than nine percent. Substantially, Europe is now trading water, waiting to see how much more damage happens when Wall Street opens in a few hours time and, of course, looking to Washington, hearing what President Bush says to those European finance ministers and also, of course, crucially what the finance ministers of the G7 decide. But if you are looking for help and a rescue this morning from Europe, forget it.
ROBERTS: Richard, what's driving the selling over there?
QUEST: Fear. F-e-a-r. Fear that policymakers haven't got their hands around the neck of this problem. Fear that what has been done so far is too little too late. And fear that there's more selling to come. So you better get out now before the house comes down around your head. Basically, that's it.
ROBERTS: Are a lot of people just trying to get out of the positions that they have before the weekend and take another look at this on Monday, Richard?
QUEST: No. No. That would assume that there's a rationality to what's happened. You don't get a nine percent fall two -- two days running. We've had -- well, two days has been about nine percent fall in the world's second largest economy. Well, Japan that is. We often forget about Japan, second largest economy in the world.
The European Union is the largest single market in the world. We are now seeing losses in excess of 40 percent across the market. If you add that into what's happened in the United States, it is the equivalent of a MacTruck (ph), a fleet of MacTrucks (ph) roaring down the interstate towards you and you're basically going stop, stop, stop! I mean, you know what's going to happen. You know how this is going to turn out.
ROBERTS: Richard Quest with a way of explaining things that we can all understand this morning. Richard, thanks so much for that.
CHETRY: Yes. And President Bush is wasting no time. In just about four hours, he's going to again address the nation.
CNN's Brianna Keilar is live in Washington. You know, what is he saying, if anything, to reassure this jittery market and everyone sitting at home that this will get better?
BRIANNA KEILAR, CNN CORRESPONDENT: Well, Kiran, we are not expecting him to make any policy announcements, any changes to policy and talk about that today. So it is all about reassurance to Americans, also to the markets to tell them basically that help is on the way in the form of this economic bailout package that passed Congress last week.
He is speaking about the economy here in the Rose Garden. This is going to be in the 10:00 a.m. Eastern hour, and he has spoken on the economy almost 30 times in about as many days.
We heard yesterday White House Press Secretary Dana Perino saying Americans should be confident that every effort is being taken to stabilize our financial system. We'll hear something similar from President Bush. And we've heard him as well urging patience in recent days.
Yesterday, he acknowledged the economy is going through what he called a very tough stretch, and he tried to assure Americans that the economic bailout is geared toward freeing up capital to make sure that people can get loans and be able to get through these difficult economic times. So reassurance, yes. But also a tacit sign from the White House. I want to tell you about as well just about how challenging a time this is.
The president has invited the finance ministers of the so-called G7 countries, the industrialized nations, to the White House. That's going to happen tomorrow. And, Kiran, he's expected to make remarks after that meeting as well.
CHETRY: All right. Thanks so much. Brianna Keilar for us in Washington this morning.
Beyond the big headlines like how far the market fell, there are also some smaller snapshots driving home the scope of this financial crisis. Here's an "AM EXTRA" now with a few that caught our eye overnight.
General Motors stock, the price was the big one. It fell to 4.76 a share Thursday. That's the lowest price for General Motors since the 1950s.
GM had plenty of company on Wall Street yesterday. The price of 1,754 stocks on the big board fell. Only 87 stocks saw their value increase.
And the Commerce Department is now reporting a drop in consumer spending. Things like clothes, shoes, casino trips, sporting events. In fact, consumers have cut back sharply on spending. This will be the first quarterly decline we've seen in consumer spending in 17 years.
ROBERTS: We're covering the breaking news for you this morning. A grave situation as markets plunge around the world. The candidates reacting. We'll tell you what they're saying and how they plan to protect your money.
You're watching the "Most News in the Morning."
(COMMERCIAL BREAK)
ROBERTS: Eleven minutes after the hour. Breaking news. The vicious downward spiral in the markets continues. Overseas investors frantically unloading stocks.
Japan's Nikkei index down more than nine percent. Hong Kong also fell sharply more than seven percent. In Europe, the markets still open. They have plummeted. Right now, London in strong negative territory and it's all down about 10 percent overseas.
It comes after Wall Street went into free fall during the final minutes of trading, down about 679 points. Another $900 billion in investors' value simply gone.
CHETRY: Well, the economy continues to dominate the conversation along the campaign trail as well. At a John McCain rally in Wisconsin, the strain and frustration of his supporters was evident. McCain trying to ease that anger by touting his $300 billion plan to buy up bad mortgages. It's a plan he told ABC's Charlie Gibson is vital to turning around the economy.
(BEGIN VIDEO CLIP, ABC'S WORLD NEWS)
CHARLIE GIBSON, HOST, ABC'S WORLD NEWS: Let me talk about that plan, $300 billion. New money, or part of the $700 billion? SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: Part of the $700 billion. New money if necessary. Look, in one day, they wiped out 1.2 trillion when it dropped 700 points. And I'm not throwing this money around lightly. But if the housing values continue to go down, there's no forward. There's no turn around here.
(END VIDEO CLIP)
CHETRY: McCain also focused on Barack Obama's character by again questioning his ties to Bill Ayers, the former member of the domestic terrorist group, the Weather Underground.
And Barack Obama returning the fire focusing on the economy as he marches through Ohio. According to the latest CNN poll of polls, he is ahead in this crucial battleground state, 50 percent to John McCain's 46 percent.
And CNN's Suzanne Malveaux is live in Chillicothe, Ohio, today.
Hi, Suzanne.
SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Hey, Kiran. Well, Barack Obama is going to be here in Chillicothe, Ohio. The reason why is, this is a bellwether town. What people do here in this town is a pretty good indication of how Ohio voters are going to go. The last two elections they went to George Bush, but Barack Obama thinks that he can change this by addressing the economy.
(BEGIN VIDEOTAPE)
MALVEAUX (voice-over): Barack Obama in overdrive, kicking off his five-city Ohio tour kissing babies and keeping on message.
SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: Well, I've got news for John McCain. This isn't about losing a campaign. This is about Americans here in Dayton who are losing their jobs and losing their homes and losing their life savings.
MALVEAUX: The economy is center stage in the make or break state of Ohio, where unemployment is 7.4 percent, the sixth highest in the nation. Dayton's mayor says 33,000 have lost jobs in her area over the last seven years. Obama promised that if he was president, he'd put them back to work.
OBAMA: To create five billion new green jobs over the next decade.
MALVEAUX: No Republican has won the White House without winning Ohio, so Obama is here to make sure he holds on to his slight lead. He believes focusing on the economy will get him to the finish. Obama slammed McCain's latest proposal for the government to buy bad mortgages back at full value saying it would end up costing taxpayers billions and reward lenders bad behavior.
OBAMA: Taxpayers shouldn't be asked to pick up the tab for the very folks who helped create this crisis. MALVEAUX: The campaign released a new ad on cable TV to emphasize the point.
(BEGIN VIDEO CLIP, CAMPAIGN COMMERCIAL, OBAMA FOR PRESIDENT)
NARRATOR: Putting bad actors ahead of taxpayers? We can't afford more of the same.
(END VIDEO CLIP)
MALVEAUX: McCain defended his plan as a costly but necessary fix.
OBAMA: Don't be hoodwinked by his ads. Don't fall for the old (INAUDIBLE).
MALVEAUX: But Obama is increasingly portraying McCain as deceptive, out of touch and out of control.
OBAMA: It's called the old bait and switch. What he gives with one hand he'll take away with another. He thinks we won't notice. Well, I've got news for John McCain. We do notice, we know better, we're not going to let him get away with it.
(END VIDEOTAPE)
MALVEAUX: And, Kiran, it really is remarkable to see the change, dramatic change in the tone, the language at these rallies. Barack Obama directly going after John McCain, questioning his honesty, his truthfulness over whether or not he's really going to be able to help the American people -- Kiran.
CHETRY: All right. Live today in Chillicothe, Ohio. All right. Thanks so much, Suzanne.
ROBERTS: Sixteen minutes now after the hour. Breaking news this morning.
Major selloffs to tell you about in Europe and Asia. The latest numbers on the financial crisis just ahead on the "Most News in the Morning."
(COMMERCIAL BREAK)
ROBERTS: Half (ph) minutes after the hour. We're following breaking news, a worldwide financial scare as investors pull their money from the markets and are they pulling.
Overseas, Japan's Nikkei down more than nine percent. Hong Kong also closed down by more than seven percent. In Europe where trading is underway, the markets are in negative territory. The FTSE down a little bit more than seven percent.
We're seeing bigger declines in France and Germany. It all comes after Wall Street went into free fall during the final minutes of trading, down about 679 points closing below the 9,000 mark. For the first time in five years, stocks this year on track for their worst performance since 1937.
CHETRY: Well, at nineteen minutes past the hour, we need a little bit of good news here. We need a little bit of a break from the financial doom and gloom.
Rob Marciano down at the weather center in Atlanta.
ROB MARCIANO, AMS METEOROLOGIST: Yes.
CHETRY: Unfortunately, you can't tell us 80 degrees and sunny, right? You're watching Hurricane Norbert.
MARCIANO: Well, in some spots, you know. We're usually the gloom and doom department so I'm happy to have that on somebody else's shoulders.
This is an impressive looking satellite. Actually, this is Hurricane Norbert which is just a Cat one now. That's the good news, but it looks mighty good on the satellite picture here. For the folks who live in the Baja of California and just north of Cabo, you're going to be feeling the brunt of this for sure and some of the resorts here will hit it as well.
Late tonight early tomorrow is a Cat one. It's what it's forecast to come on shore as winds of 80 or so miles an hour. Right now, it's about 300 miles from the coast of the southern tip of the Baja of California.
Big time winter storm across parts of the northwest into the intermountain west. We'll talk more about that. And then a couple of -- one tornado touched down yesterday across southeast Georgia and the remnants of this storm is out here over the gulf stream and we'll watch that for potential development into something tropical. Still hurricane season on the Atlantic side as well.
Look at these snows that are going to pile up across parts of Montana. Winter storm warnings posted for this area. You could see in the mountains at least well over a foot of snow. And then remember this time last year, the fires that broke out in Southern California? Well, we've got not quite an extreme set up but certainly strong winds and critical fire danger, and red flag warnings are posted for this part of the country.
So, kids stay away from matches. Today and tomorrow's map looks a little bit active.
We'll watch this thing. It could get interesting there, Kiran. But look, big blue "H" for the northeast. Nice. Should be nice weather up there, OK? A big smile.
CHETRY: Right. Exactly. So when you log on and watch your 401(k) down by a third for the year, at least the sun will be shining on you.
MARCIANO: Yes. I recommend not to log on.
CHETRY: All right.
MARCIANO: Just go outside and take a walk.
CHETRY: You should have told me that an hour ago when I did.
Rob, thanks.
MARCIANO: See you, Kiran.
CHETRY: Well, more chaos on the world financial markets. The stocks in Asia and Europe take a plunge overnight. An economic expert is here to tell us what is going on.
You're watching the "Most News in the Morning."
(COMMERCIAL BREAK)
CHETRY: Welcome back. We're following breaking news this morning on AMERICAN MORNING on this Friday. Stock markets plunging in Asia and Europe overnight following another super slide in the Dow. The Dow lost 679 points yesterday. So is there any end in sight to the global financial crisis? It's the trillion dollar question literally right now.
Lakshman Achuthan is an economic analyst and the managing director of the Economic Cycle Research Institute. He joins us now this morning. If there's any way to put this in perspective and perhaps talk about a bright side or even an end in sight, what would it be today?
LAKSHMAN ACHUTHAN, DIR., ECONOMIC CYCLE RESEARCH INST.: Well, a good part of what you're seeing here is cyclical, OK? So what goes down must come up. This is the normal course of free markets. We're just on the really nasty side of it at the moment.
It feels kind of like the global recession that we had in the mid-'70s. When we look at the forward-looking indicators on the economy, they're at readings that were that weak. And so, that's in a sense somewhat consistent with what we're seeing right now. But then we know that the credit crisis is a big piece of this as well.
CHETRY: And because of the credit crisis, will we be seeing an end to the "free market" as we know it? I mean, now we're talking about the federal government coming in and buying up some of these banks, as well as the toxic assets.
ACHUTHAN: Right. I think, to a degree, yes. What we're going to see is an application of the full faith and credit of the United States government applied to the banking system. So instead of you saying, you know, is this bank creditworthy or that one creditworthy? They're going to say they're all partnered with the U.S. government in one way, shape or form. So they're all creditworthy. I mean, if you socialize enough of the credit system, it will work.
CHETRY: Some would argue that's how we got into this mess in the first place. You look at Fannie Mae, Freddie Mac and some of the other lending, government-backed lenders.
ACHUTHAN: There's a lot to work out on the other side. This is going to raise a lot of issues that we're going to have to sift through once this crisis is over. However, right now, the issue is getting the credit flowing.
That will not solve right away the stock market, by the way. You know, the stock market is reacting to the fact that profits outlook is not good, and people are fearful of that. And therefore, don't want -- don't have big risk appetites. You're seeing that across the world. So there's two issues here -- credit and the stock market.
CHETRY: The president is going to be meeting with finance ministers from the G7, the industrialized nations, on Saturday trying to sort of come together, I guess, and figure out -- when I read it, it said exchange of ideas. They don't really know what to do, so they're going to try to talk about it, hash it out tomorrow.
ACHUTHAN: That's right. That's right. They're making up a few things or dusting off the history books to kind of see what can we do in this situation. In that respect, you know, Bernanke is not a bad person to have in the room because he's an expert on this type of historical events.
CHETRY: You're talking about the Fed chairman.
ACHUTHAN: The Fed chairman, Ben Bernanke.
But you've already seen the British government step in, take about a one-third stake in the four largest banks in Britain to keep them very sound, and that may be a model that's on the table here in one way, shape or form in terms of the U.S. government and other European governments in terms of a G7 kind of coordinated, you know, the sovereign governments are standing behind the credit markets.
CHETRY: Right. Now, we certainly know there's no one size fit all advice for people. But for many people out there this morning turning on the TVs and seeing yet another day, seventh straight in a row of losses, what's the advice? What should they do or at least what should they keep in mind?
ACHUTHAN: Well, I think, one thing is the cash deposits. Your bank deposits, those are safe. OK. Those are guaranteed to a quarter million dollars and probably beyond that, all truth should be told, but literally to a quarter million bucks.
The second thing is in terms of your 401(k), your stock investments, the losses that you've suffered so far are probably the bulk of the losses. OK. In the '73, '75 bear market, we lost somewhere around 45 -- I'm doing it on top of my head -- 45, 48 percent. Here we're down about 40 percent.
So if you pull out here and just take all your money and go home, you do run the risk of missing the upturn and that is not something I've said until now, mind you, because I've been forecasting this recession and that's not a good time to be in stocks. But the time to kind of move out has already passed. Going forward, I think it's probably best to just hang in there.
CHETRY: All right. It's harder to do...
ACHUTHAN: It is.
CHETRY: ... but you're right if you think about it.
Lakshman Achuthan, great to have you with us this morning.
ACHUTHAN: OK. Thank you.
CHETRY: We'll be talking to you throughout the morning as well. OK.
ROBERTS: Coming up to the half-hour now. And we're following the breaking news and the chaos in world markets.
Japan's Nikkei index closed down 9.6 percent. In Hong Kong, the Hang Seng market lost more than seven percent. European stocks are also sharply lower.
The FTSE in London is down about seven. The DAX and the CAC-40 in France down a little more than eight percent, almost nine percent. All of this after a late selloff sent the Dow over a financial cliff ending in a 679-point loss and a five-year low.
President Bush will try to reassure Americans about the economy this morning when he speaks at the White House. That will be in the 10:00 a.m. hour from the Rose Garden. Of course, we'll carry that live here on CNN.
Christine Romans here "Minding Your Business." It's looking like it's going to be a very bad day on Wall Street again today.
ROMANS: It is. And we keep looking back to '87 and you and I were talking about this. We look back to '87 for some sort of guidepost. And '87 felt much more immediate and boom.
This has been slow, hit over and over and over again that it's sort of been like a crescendo almost. And every time the federal government or the central bankers jump in there and try to do something, John, it isn't helping.
Just a couple of day ago, we were standing here, right, and the Fed had this emergency rate cut, global intervention across the board, across the world. And look, we still had markets down sharply.
Look at the carnage in the Dow just in the past couple of days. Some 17 percent loss. Look, $2.3 trillion in stock market value gone. For the year, the Dow down 35 percent. The Nasdaq down 38. These are the kind of numbers you're going to see on your 401(k) statement, by the way. And if you haven't looked yet, that's probably what you're going to see. The S&P down 38 percent.
And these are the extraordinary measures that the Fed and the treasury and global bankers have taken. They have cut interest rates. They have injected hundreds of billions of dollars into the system. They have bailed out financial firms. They have guaranteed bank buyouts. They have bought up short-term debt, and they may end up taking actual stakes in the bank. And still, you are seeing markets reeling from fear. And that is what this is. This is fear across the globe.
ROBERTS: So, they put band-aids on all of these wounds and yet the slow exsanguination continues.
ROMANS: That's absolutely right.
ROBERTS: Are they going to potentially have to rethink what they do with this $700 billion bailout?
ROMANS: I think they already are rethinking what they're going to have to do with that $700 billion bailout. You know, I know that yesterday you talked to the president's right hand man on the economy and he was saying, look, it takes time, right? It does take time but the longer it takes, things are changing on the ground.
ROBERTS: And Ed Lazear, who is the president's economic adviser we talked to yesterday in "THE SITUATION ROOM," said -- he didn't seem to indicate that they had the plan fully formed yet. And when I asked him about this idea of taking an equity stake in banks, he said, well, it's definitely something we're looking at. I said, well, can you say that you will do that. He said, we don't know yet.
So, he does sound like they're going back to the drawing board here, looking within the legislation to figure out exactly what we can do and what should we do. We were talking before we went on the air here maybe recapitalizing the banks instead of buying up these toxic assets might be a better idea.
ROMANS: I'm going to say something that I know for sure, because we don't know what that's going to look like, that $700 billion. But I know that people were so skeptical of that $700 billion bailout in the first place, and now they're saying, wait a minute, you don't have the details, you're trying to be careful.
But the longer you're taking, the more the stock market is falling apart here and the credit market, which is the core of the problem, hasn't thawed at all. I know that you probably have been hearing from some people, too, but a lot of skepticism about why do we spend all that money in the first place.
I mean, there's a real populist uproar about this entire mess. People want to know who to blame and they don't trust -- I mean they don't trust that oversight in Congress. They don't trust the folks who are steering the ship here. They don't trust the banks and there's a lot of anger about what's going on. And that's separate from the fear that's rising around the globe.
ROBERTS: And the results of it are being seen around the markets, though, around the world.
ROMANS: Sure. ROBERTS: Christine, thanks. Lots to talk about this morning -- Kiran.
CHETRY: In fact, we're talking about Europe as well this morning. Stock markets all across Europe plunging at the opening bell.
Diana Magnay is live for us in Berlin where the German DAX is down nearly 9 percent this morning -- Diana?.
DIANA MAGNAY, CNN CORRESPONDENT: Well, it's been an absolute rush. As you say, the DAX opened 10 percent lower. It fell 10 percent in the first minute of trading. It's been hovering around minus 7, minus 8, now around minus 9 now.
I'd just been talking to one of the traders on the floor of the DAX. He said it is panic selling. He said that they are hoping but not expecting some kind of global promises to come out of this G7 meeting in Washington, but those hopes are minimal he said.
He also said that he expected European governments to be looking very closely at this U.K. bailout plan as the U.S. is now to partly nationalize the banks. Because he said if you have U.S. and U.K. banks that have large government stakes in them that are supposedly because of that, then that puts Germany's banks, France's banks at a competitive disadvantage.
So, until the German government can look into doing that kind of thing, he feels that the banking sector on the DAX is still going to be hammered -- Kiran.
CHETRY: Yes. As we've talked about this morning, seems to be cyclical as world markets continue to plunge and some of the fear just needs to feed off itself. And, boy, we're looking at a down day today here in the U.S as well.
Diana Magnay for us this morning from Berlin, thank you -- John.
ROBERTS: And at 33-1/2 minutes after the hour. The question on many people's minds is where is the bottom and what should I do if I'm watching my 401(k) evaporate. Well, joining me now is Paul Mladjenovic. He's a certified financial planner, author of "Stock Investing for Dummies," puts this all in language that we can all understand.
So, you're 401(k) holder or you're a small investor, what do you do?
PAUL MLADJENOVIC, CERTIFIED FINANCIAL PLANNER: Well, with this case don't panic. I think the most important thing for people to remember is that they should be away from things that are like cyclicals and financials and all the rest of these things. I think going forward the most important thing for people to do, to revamp their portfolios, to be back on the winning track in the coming months and year is to remember two words -- human need. They should be switching all their portfolios to all those things that people will want and will need no matter what what's happening with economy.
ROBERTS: For example?
MLADJENOVIC: Food, water, energy. And yes, precious metals, too, because it's going to be a highly inflationary environment in the next few years.
ROBERTS: All right. So most people who have 401(k)'s and perhaps they manage them online, just, you know, reallocation, you're only allowed to do this once, maybe twice a year. When you're talking about those types of investments, all they see when they look at their 401(k) portfolio is the funds that they can invest in. How do you know which funds are in which stocks?
MLADJENOVIC: Well, they should be talking to the customer service people who are overseeing these funds and try to get them to defensive stocks because I realize people have limited choices in some of these things. As long as they go to defensive stocks like consumer staples, dividend-paying stocks, these kinds of things will survive and in most cases thrive in the coming years, pass all this nonsense that are going on now.
ROBERTS: So, there are a lot of people at home who have been opening up their 401(k) statements in the last couple of weeks and looking at it, they're seeing their plans down, 20, 25, in some cases even 35 percent, based on how young they are and how aggressive they are and what fund they're invested in. What should they do if they are thinking, oh, my God I can't stand this anymore, I'm getting out.
MLADJENOVIC: Well, first of all, obviously the most obvious thing is obviously to switch into cash, but they --
ROBERTS: Should they get out or should they stay in?
MLADJENOVIC: Well, I think they should just revamp it because there are some portfolios still great a risk. I mean, I think seeing the Dow heading down to 7 and 6,000 is more than a likely possibility in the coming years. Therefore, the things that they should be tied to right now are away from things that are too tied into credit, discretionary. And again, human need is the best place to be -- food, water, energy and again, precious metals.
ROBERTS: We talk about people in their 20s and 30s, their 40s, then 50s and 60s. So, for 20s and 30s, what should they be doing right now in terms of (INAUDIBLE)?
MLADJENOVIC: 20s and 30s, even though a lot of great investments are down right now, there are still some great opportunities. You're going to see a resurge in the commodities because there are worldwide shortages in many of these things. So, these are going to be the growth areas as the population booms, and as China keeps growing, it's not a global crisis.
ROBERTS: 40s?
MLADJENOVIC: 40s, definitely should be going to dividend-paying defensive stocks in the Fortune 500s. You know, very stable companies, dividend-paying, profitable and again tied to human need.
ROBERTS: And mid-50s to 60s?
MLADJENOVIC: They should start making sure that nearly half of theirs should be in things that are to like say the government bonds and things of this nature. But the second half, the same as the 40s. You know, dividend-paying stocks that can keep on growing.
ROBERTS: Paul Mladjenovic, "Stock Investing for Dummies," good to see you this morning. Thanks for coming in.
MLADJENOVIC: Thank you.
ROBERTS: Kiran?
CHETRY: And if the financial crisis has you wondering what to do with your money, help is on the way. Our personal finance editor Gerri Willis is working her blog. A lot of people writing in to Gerri this morning. She's going to try to answer your questions. Also, there's still time to send one. Just go cnn.com/am.
(COMMERCIAL BREAK)
CHETRY: Welcome back. We've been following the burgeoning financial crisis hitting not only us up in the United States but also worldwide. Dow futures right now down 250 after yet another down day, nearly 670 points yesterday. So, what does all of this mean for your wallet or your pocketbook? CNN's personal finance editor Gerri Willis has been working her blog. She's here to answer some questions this morning.
You have one that really could relate to many of us -- what many of us are wondering this morning.
GERRI WILLIS, CNN PERSONAL FINANCE EDITOR: Kiran, I got to tell you, people are so stressed. Let's start with Ira in Florida who writes, "Are bond safer than stocks? How safe are money market funds?" OK, well, you've got this right. Bonds are safer than stocks. Money market funds are safe because the federal government is standing behind them right now. They are certainly very safe indeed.
But I want to talk a little bit about sort of the fear and uncertainty that I'm seeing in emails from folks all over the country. I know you're really worried about a lot of things right now. But there are some worries we can just take off the table, OK?
I'm hearing worries about corporate pensions. Is my corporate pension safe? The answer is yes. That's a guaranteed retirement benefit. It's like your health care when you're working. You're guaranteed that benefit. Of course the big fear is that what if my company goes out of business then what happens to my pension? Well, there's an insurance, a back stop for folks who have pensions with companies that go out of business. It's called the PBGC -- the Pension Guaranty Corp, and will stand behind your pension if your company goes out of business. So, stop worrying about the corporate pension. That's not something to worry about. I even got a question about treasuries. Are treasuries safe? Now, I have to tell you, if you have a problem with your treasury, it's backed by the full faith and credit of the federal government. If you have a problem with that, we are in serious do-do. That's not something to worry about. Money market funds, treasuries, these are very safe investments. And Kiran, let's just go over for a second, sort of what's safe and what's not. And from the most secure investment which would be treasuries, taking a step out on the risk spectrum would be corporate bonds. Taking another step would be stocks that pays some sort of dividend or preferred stock and then just plain old simple, plain vanilla stocks. That's the range.
Everything has a different kind of risk. Treasuries obviously issued by the federal government are the safest. But I got to tell you, the fear out there that I'm hearing from people, some fears you can just simply take off the table at this point and stop worrying about them. Pensions, treasuries, those are two of them.
CHETRY: All right. Well, at least we need a couple of things we don't have to worry about today for sure.
WILLIS: That's right. That's right.
CHETRY: You'll be taking some emails throughout the morning, and try to answer more of those for us. Gerri, thank you.
WILLIS: My pleasure.
ROBERTS: Stocks take a sharp downturn all over the world, but where is the bottom to this sell-off? Renowned economist Jeffrey Sachs gives us his take. You're watching the "Most News in the Morning." Stay with us.
(COMMERCIAL BREAK)
ROBERTS: 45 minutes after the hour. And breaking news this morning. Worldwide markets in steep decline. Investors continue to lose confidence as the markets lose value. Asian stocks tumbled near 10 percent. London's FTSE traded below 4000 for the first time since 2002. The European markets all down about 8 percent this morning.
Joining us now to talk more about this, leading economic advisor and Columbia University Professor Jeffrey Sachs who this morning is going to be going down to Washington to represent Ban Ki-moon at this IMF meetings that would be taking place with President Bush.
Where are we today, Jeff?
JEFFREY SACHS, PROF. COLUMBIA UNIVERSITY: Well, clearly, we've gone from downturn in housing to banking crisis to liquidity crisis. Now everybody is looking at the real economy going into pretty steep recession next year, and that is having the next turn of the wheel. Look at GM collapsing in shares, fears for the auto industry, together with the housing industry, consumer spending down. So, we're just seeing a continuing vicious circle building and with a lot that's been thrown at this in the last few weeks, it hasn't stopped that downward spiral.
ROBERTS: What do you say to people at home who are looking at these numbers this morning saying wait a minute, this is just like yesterday and the day before and the day before that. Where does it end?
SACHS: Well, in terms of economic hardship, it's not going to end shortly even if a financial bottom is reached because there will be rising unemployment, there will be a recession next year. There will be lots of headaches and problems at the personal level, of course. And large budget deficits. The key to stop it from going even further is to put a brake on the collapsing financial system.
And I think that the central banks are fighting very hard to do that now. My feeling is that they are moving in the right direction. But we're also suffering from the fact that we don't have a functioning government in the United States. We have elections. We will have a functioning government on January 20, 2009. And we're in a hiatus now with a failed administration, an election coming up, lots of uncertainty and no leadership. So, this is the problem.
ROBERTS: So, in terms of whatever ideas that can be thought of in the next few days to try to stop the bleeding, not just slow it down, but stop the bleeding, these meetings that you're attending, the IMF, G7 -- President Bush will be there. Finance ministers from around the world. What are you going to be talking about?
SACHS: Part is to see if Asia, which sits on about $4 trillion of reserves, that's Japan, China, Korea, other countries in the region can do more to boost demand. They could be spending more public investments and so on. If they boost demand, they don't go into the same downward spiral and they continue to buy U.S. goods as well.
So, part of the goal is to get international cooperation. So that while there's a downturn brewing in the United States, it's not matched by collapse elsewhere, but actually boosting in other places. Also there's a need for cooperation and coordination of the central banks -- the ones that manage the financial system so that the banking sector contains some liquidity and if people can get loans and business can get loan. So, there's lots to talk about.
But, again, with the end of this administration, without any clear political leadership right now, we're going into a recession and probably a fairly sharp one. We're waiting for the next president and that's going to be key.
ROBERTS: You got a plane to catch this morning to get down to Washington. But you'll be with us for about the next half-hour. So, we'll talk more about this in just a few minutes.
SACHS: Wonderful.
ROBERTS: Jeff Sachs from Columbia. Thanks so much.
Kiran? CHETRY: Well, the markets are in a freefall, but who is really to blame. A new theory says it could be you, and get this, you can't help it. What's behind so called behavior economics?
(COMMERCIAL BREAK)
CHETRY: We're following breaking news this morning. Fear gripping markets from Asia to Europe to right here at home. Investors pulling their money out and fast. Steep declines to report in China and Japan. In Europe, stocks are down significantly across the board, and right now, it is shaping up to be another rough day on Wall Street. This coming after yesterday's 676 point decline. We're now looking at Dow futures down 300 points.
John?
ROBERTS: Nine minutes now to the top of the hour. Take a deep breath for a second here and relax. I'll show you one of the corkier moments in the "Most Politics in the Morning." Politicians are used to being called names. You might say it comes with a territory. But as CNN's Jeanne Moos tells us, Joe Biden probably never expected to be called this.
(BEGIN VIDEOTAPE)
JEANNE MOOS, CNN NATIONAL NEWS CORRESPONDENT (voice-over): Sure, there are two white guys of a certain age but are John McCain and Joe Biden so hard to tell apart? Ask Jim Piccillo. It was his job to introduce V.P. picked Biden. This is how Jim ended up as fodder for Jay Leno.
JAY LENO, HOST, "THE TONIGHT SHOW WITH JAY LENO": Ladies and gentlemen, Joe Biden. I mean, he practiced it, what, a hundred times, a thousand times just so you get it right.
JIM PICCILLO, OBAMA-BIDEN SUPPORTER: Tell me today in welcoming the next vice president of the United States, John McCain!
(LAUGHTER)
MOOS: But the funny part is that Jim didn't know he blew it, a fact that came out a few hours later during an interview on Tampa Faye's Travis & Jenny radio show.
Jenny: Did you even realize you did it?
PICCILLO: No, I had no idea. It was on ABC News.
Jenny: It was on abcnews.com.
PICCILLO: Oh, my God.
MOOS: Jim is a Republican supporting the Democratic ticket. He first heard his own gaffe on the radio driving home.
PICCILLO: We heard it from you guys. We thought that it was completely made up and then somebody had maybe spliced it together. So, we're sitting there in a stop sign, like screaming basically.
MOOS: Next thing you know it's all over the Internet.
PICCILLO: The next vice president of the United States, John McCain.
MOOS: Joe Biden, by the way, came out and shook Jim's hand.
SEN. JOSEPH BIDEN (D), VICE PRESIDENTIAL CANDIDATE: Let me thank Jim for that, for that nice introduction.
MOOS: Jim said Senator Biden couldn't have heard the blooper. That it was impossible to decipher what was being said from backstage. This was actually the second flop in Jim's speech.
PICCILLO: All that will change under Barack Obama and Joe Biden's administration.
MOOS (on camera): Don't worry about it, Jim. You're not the only one adding an extra "O."
GOV. SARAH PALIN (R), VICE PRESIDENTIAL CANDIDATE: Barack Obama and Senator O'Biden, you said no to everything.
MOOS (voice-over): Not that we in the media ever blow a name.
(on camera): Don't worry about it Joe. Joe. His name is Jim. Did I call him Joe the first two?
(voice-over): Jim doesn't have to worry about Senator Biden getting mad. After all look at how Biden introduced Barack Obama.
SEN. JOSEPH BIDEN (D), VICE PRESIDENTIAL CANDIDATE: A man who will be the next president of the United States, Barack America.
MOOS: Only politicians could admit their mistakes the way Jim confessed to his calling it a --
PICCILLO: A complete and, you utter, American moronic brain fart moment.
MOOS: Jeanne Moos...
PICCILLO: The next vice president of the United States...
MOOS: ...CNN...
PICCILLO: John McCain.
MOOS: ...New York.
(END VIDEOTAPE)
ROBERTS: You're money in a freefall. But how did this mess really begin? A brand new place for blame.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: People are running on emotion.
(END VIDEO CLIP)
ROBERTS: Wait, you did this?
Plus a race so intense, is it Saturday or is it Thursday?
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: One thing I absolutely promise...
UNIDENTIFIED MALE: Time is up --
UNIDENTIFIED MALE: ...My friends.
UNIDENTIFIED MALE: Senator McCain, your time is up.
UNIDENTIFIED MALE: But everybody is paying attention, and this is a really special election.
(END VIDEO CLIP)
ROBERTS: Behind-the-scenes at Saturday Night Live. Why the show is taking a starring role in the race for the White House. You're watching the "Most News in the Morning."
(COMMERCIAL BREAK)
CHETRY: Welcome back to the "Most News in the Morning." We're following breaking news this morning as global markets plunge into the red. Asian markets seeing huge selloffs overnight with Japan's Nikkei closing down almost 10 percent. Early trading in Europe has seen markets down anywhere from 5 percent to nine percent. Dow futures show another sharp fall on Wall Street this morning as well. So, joining us to help put this into perspective today is Lakshman Achuthan. He's an economic analyst. Also, the managing director of the Economic Cycle Research Institute.
Thanks for being with us this morning.
LAKSHMAN ACHUTHAN, ECONOMIC ANALYST: Well, thanks for having me.
CHETRY: So, we woke up to pretty much the bad news that we left with yesterday which was 678 point loss for the Dow this morning. We know that there's trouble, but is there any one or series of causes that's happening are right now that's causing this?
ACHUTHAN: Well, it's really -- to keep it simple, there's two pieces to this. There's a credit crisis, which we've all known about and then talking about. And that's been combined with a global recession. OK? And the global recessions, these happen over time. We get recessions every once in a while. We've had a couple since World War II. It looks like this global recession is roughly on par with the one we had in the mid-'70s. In the mid-'70s, we also had a bear market that didn't happen overnight. It kind of happened over time. We lost 45 percent, 48 percent of the value of equities. We're down about 40 percent now. So, it's somewhat similar. It's not exactly the same but it's somewhat in that ballpark. And that part of it, you can't do anything about.
CHETRY: Right.
ACHUTHAN: That's just happening. The credit part you can maybe do something about.
CHETRY: And that's what I'm wondering. Is there a consensus about how we got here? Because sometimes you got to know that before you can figure out how to solve it.
ACHUTHAN: You know, and I think that's actually part of the reason we're here. Because there hasn't been an understanding about how we got here, OK? There was this housing and credit problem, and then the recession is approaching, and, you know, a lot of time was wasted as opposed to acting quicker. And then even, I heard the discussion earlier, you know, we have the bailout package but we haven't enacted it yet. And the whole issue here is time.
The business cycle, the markets, they don't wait for any of these debates. They're going to move right away, instantly. So, you have to also be having policy move quite quickly. These are huge things that are being done right now. I think the governments, not just the U.S. government, the governments of the world can do something about the credit part of this problem. That's half of the problem. The other half of the problem is the global recession and, unfortunately, the business cycle dwarfs governments. And so, you can't do anything about that. That part were among for the ride on.
CHETRY: All right. We're also seeing another problem. We're seeing consumer spending pull back. Consumers -- this is the quarter in 17 years that we've seen it end with consumer spending down.
ACHUTHAN: Right at holiday season, too.
CHETRY: Right at the holiday season. I mean, this affects the job market, of course, and retail. And my other question is whether or not another idea being kicked around by some of the Democrats in Congress right now is do we need another multibillion dollar stimulus check to go out to people. Will that do anything?
ACHUTHAN: Yes. Well, it may do something on generating a recovery next year. OK. The immediate issue at hand is unsticking the credit markets. And I think the governments, the major governments not even the G7, the G20, even bringing in some of the bigger emerging markets as well, all of them need to get together and say that they're getting behind the credit markets. And I suspect that will come out of these meetings that they're having right now. If they don't, then there's trouble in the credit markets.
On the business cycle, on where is the consumer headed, on where jobs are headed, we're going to have to ride this out because the train has left the station. There is nothing you can do about that. We are along for the ride. That is the bad news.
The good news is that the business cycle always turns. OK. Out of all of this destruction, there will be new opportunities. And there will be pent up demand. And when you add that with all of this liquidity that has been put in here, we will have a recovery. Another bailout package may reinforce that recovery, and in that sense it may be a worthwhile idea.
CHETRY: The stimulus?
ACHUTHAN: Another stimulus just to reinforce to make sure that somewhere in '09 there's an upturn that sticks.
CHETRY: Right. All right. We're going to be talking about this throughout this morning.
Lakshman Achuthan, great to see you this morning. Thanks.
ACHUTHAN: OK. Thank you.
CHETRY: John?
