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YOUR MONEY

Rescue Plans, Rate Cuts, Billions In Cash, Global Government Moves Are Still Going To Need Time Before Stock Markets And Economies Recover

Aired October 11, 2008 - 13:00   ET

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


CHRISTINE ROMANS, CNN ANCHOR, YOUR MONEY: Welcome to this special emergency edition of YOUR MONEY. I'm Christine Romans.
ALI VELSHI, CNN ANCHOR, YOUR MONEY: And I'm Ali Velshi. Markets around the world tumbled this week; New York, Asia, Europe, the financial crisis ricocheted around the world.

ROMANS: That $700-billion bailout, the Fed emergency rate cut doing nothing yet to patch up the U.S. economy or the markets. The credit markets remain tight, but there could, I repeat, could be a sign of a light at the end of tunnel.

VELSHI: Which isn't a train headed toward you. Where do we stand. Where does YOUR MONEY stand? Over the next hour we'll answer your question, that you're asking about your job, your savings, your debt, your investments.

ROMANS: We are joined by Diane Swonk, of Mesirow Financial, and John Rutledge, Chairman of Rutledge Capital, and with us in the studio, Ryan Mack, president of Optimum Capital Management.

Ryan, let's start with you. It has been a hellish week for stock investors.

RYAN MACK, PRES., OPTIMUM CAPITAL MANAGEMENT: Definitely.

ROMANS: Anyone with a 401(k) is really white-knuckled here. What is your number one piece of advice when people call you?

MACK: First of all, be patient. Again, we have to look back at the previous crashes we've had before, and at end of the day we've always come out ahead. I actually advised some of my clients to get off the sidelines. We've had a lot of excess cash positions as of late, but recently I've been saying, you know, let's get off the sideline.

ROMANS: What about those people who have ridden it down. Who have watched their --

VELSHI: We're down 40 percent in the last year.

ROMANS: A $100,000 at the beginning of the year is now worth $ 62,000.

MACK: Now is not the time to sell - unless, it depends on the state of the lifecycle that you are in. If you're getting close retirement, now is not the time to try to gamble your finances.

ROMANS: What if you've can barely pay your mortgage and you've got to cash out to keep your house.

MACK: Obviously, emergencies, your bills will come first at end of the day. I'm not trying to put anybody out on the street because they want to put money in the market.

ROMANS: Right.

MACK: But at the end of day, if you do have excess surpluses, and this is why when you start an investment strategy, there are certain things you have to have in place before you can sustain an investment strategy.

VELSHI: Bills have to be paid.

ROMANS: This is save - you save for a rainy day and you have a strategy. And I think that people who don't have those two things have been really caught.

VELSHI: Let's go to Diane for a second.

Diane, we would love to get the memo, or the press release, that says we have hit the bottom, or we're going to be at the bottom for a little while, but nobody really ever knows that it's there. We're starting to see things that some people think might be the bottom of this market. What do you think about where we and are what this means in terms of the economy?

DIANE SWONK, MESIROW FINANCIAL: Well, I think, first of all, we can't escape the economy getting worse before it gets better, and that's part of the panic that we're seeing today.

But with that said, over the last couple of weeks we've seen a seismic change in how we're doing with this crisis, going from a piecemeal, you know, individual ad hoc basis of dealing with the crisis, both domestically and globally, to a much more holistic approach. People are looking at the individual things that have been done when you need to start looking at the cumulative.

The Federal Reserve and Congress have authorized over $3 trillion in a $14 trillion economy in lending and investment money to be put out there and they're not done yet. We've also seen in the UK authorize another $1 trillion. We're meeting with all the G7 countries this weekend. And Hank Paulson is meeting with emerging markets as well, many of them funders into the U.S. economy, to try to get a global solution.

I'm very encouraged by the shift in policy making to approach this more systemically and the money is coming. The problem is it's not instantaneous. It's coming in weeks and month and on the other side of it the panic we're seeing is in the moment. I liken it to not just not being able to see the for the forest for the trees, but being in the part of the forest where there is a forest fire and there is a river blocking the rest of the forest from it, but we can't see that yet. And I think that's the feeling we're at right now.

ROMANS: We live in a world of metaphors these days.

VELSHI: Right, right.

ROMANS: Trying to figure out just how to explain this and to try to give it some perspective.

John Rutledge, let me ask you, all of these extraordinary measures to date, are they enough? Are they too much? Are they the wrong medicine? What's your assessment?

JOHN RUTLEDGE, GLOBAL ECONOMIST: I think that they're a little bit late, and I fear we have the wrong medicine. Let me tell you why. We really have two economies in America, not just one. One is the GDP, we always talked about, it's $14 trillion, but we also have a capital market, which is $200 trillion of privately owned assets.

A year ago the capital market froze up. First, leveraged loans, then later mortgages. When the capital market is frozen we can't get money to the production or GDP economy. Until March, we had a frozen capital market but positive growth with GDP. After March, the Fed began to save institutions by giving bad banks money. Every time they did that they took money away from a good bank. As of August, bank reserves had not increased basically at all in the previous year. Only in the last two weeks have they finally been increasing reserves in a big way.

So I think the Fed's delay in acting has pushed this into a genuine recession and eventually we'll solve -

VELSHI: We'll solve it.

RUTLEDGE: We will have faith in the future. It won't kill the economy, but --

VELSHI: If there is a message here, John, it is that whether or not it's the right medicine, you're sort of saying a little more prevention might have been a lot more helpful than the cure. And the reason I ask you this is because at this point we have an administration that can be making decisions now for the future, and we have two presidential candidates who are going to inherit a recession. Is there something that would be absolutely the right medicine to undertake, right now, so that it doesn't get worse?

RUTLEDGE: Of course, we have a full-fledged panic right now. Yesterday, a plumber told me that he pulled $25,000 out of his bank account because he was worried about the bank.

VELSHI: Right.

RUTLEDGE: Nobody is going to lose money in a bank. The first job of the government is to tell people the bank deposits are safe; instead of increasing deposit insurance temporarily to $250,000 we should guarantee all bank deposits against loss. That would get people comfortable leaving their money in the bank. The bank has to loan it to the businesses for the businesses to meet payroll and make jobs. That's something we could do very, very quickly. It wouldn't cost anybody a dime.

ROMANS: That's what makes this one so much different than other crisis we've seen because people are not just questioning their investments.

VELSHI: Right.

ROMANS: They're questioning where their money is safe.

(CROSS TALK)

ROMANS: Don't go anywhere. We're going to pick this up in just a minute and we'll talk about finding safe haven for your money. We have some answers for you next.

(COMMERCIAL BREAK)

VELSHI: Behind us, that's the national debt clock, here in New York City, more than $10 trillion. The nation's debt has grown so much that the organization which maintains the clock had to drop the dollar sign in front in order to make room for another digit.

ROMANS: What an honor. The clock was started during the Reagan administration with the debt at $2 trillion. Next year, the family who owns it plans to add an updated sign with two more places, capable of showcasing - get this - a quadrillion dollars in national debt.

VELSHI: Now, with that rosy backdrop we again turn to Diane Swonk, of Mesirow Financial, John Rut ledge, chairman of Rutledge Capital, Ryan Mack, president of Optimum Capital Management.

I want to discuss the fact that we've been - really, we've been focused on this financial crisis. We've been focused on the stock market and the bailout package. But, Diane, you've said something earlier. You said it has got to get worse before it gets better. The stock market is not the economy. It is a part of the economy. People depend on their retirement, but we have a housing crisis, we're losing jobs in this country. And no matter what happens this week or next with the stock market, those things are likely to continue for some time?

SWONK: That's exactly the problem and that's where the -- that was set in stone before the credit crisis sort of gained momentum after Lehman failed earlier in September. I think the real issue here is that the Fed is now -- many of the things that the Fed and the Treasury are doing are things that couldn't be done until we got to a crisis. And there could be a question as to whether they're legal or not.

Frankly, I don't care because they're doing the right things. They're learning from the Great Depression. Things that were not done from 1929 to 1932; they're reversing that and doing everything they can. I think, really, people have not looked at the cumulative effects that this will happen over the next six to 12 months. There is no silver bullet here.

(CROSS TALK)

VELSHI: I want to underscore that point.

SWONK: They're on the right track now.

VELSHI: Let's underscore that. We have a full screen that we can put up that describes what they've done and the time lines. So, what you're saying, so we start out with the bailout, the $700-billion bailout. That will not be in effect for at least several weeks, the Treasury secretary, and it could be months before they deployed that money.

ROMANS: Those short term loans to companies, though, that could be in a matter of days.

VELSHI: That could be days.

ROMANS: We could see the Fed backstopping loans.

SWONK: That's already going on.

VELSHI: Right. And then you've got this coordinated --

SWONK: And the Fed can already start buying mortgage-backed securities through Fannie Mae, we can already start doing that. And much money has been, the amount of money the Fed has been lending to banks on an overnight basis has doubled, basically, in the last couple of days.

VELSHI: And remember, you and I -

(CROSS TALK)

SWONK: And this idea that they took away money from other banks that is just silly. That's not the case at all.

VELSHI: Remember the old days we used to cover Federal Reserve rate cuts or increases? And we used to say they don't happen immediately. While the market may respond immediately and it takes several months, again, for a rate cut or increase to trickle down into the market, doesn't it?

SWONK: It does. And what was important about the last move was not so much what happened in the U.S. But it was a coordinated move. It finally got Europe to move off of its stubbornly high rates. Trichet lowered rates. And we are going see more rate cuts abroad going forward. The fact that the global sense of this crisis and a unison, the coordinated moves now is a very seismic shift from the piecemeal -- I agree, it made it worse - piecemeal kind of dealing with the crisis before this.

But I will note, many of the things and authorities and the Fed and the Treasury have invoked could not have been done unless we were in a crisis. I mean, it's a sad reality, but we had to get here to be able to get out of here.

ROMANS: John, let me ask you something. One thing that a lot of people -- real people are wringing their hands over is the fact that the United States government is taking such a huge role in private enterprise and that after years and years of preaching get government out, get government out, suddenly we're talking about the biggest intervention since the Great Depression, since 1929 or the '30s, into markets.

There's a lot of anxiety about that. I mean, some people will say, we're talking about socialism. We're talking about nationalization of banks. Is it all as serious as that?

RUTLEDGE: Well, I think there's a point there. Let me get to that in a minute, but I can't allow unchallenged this notion about the reserve.

As of three weeks ago, the increase in bank reserve, for the previous 12 months, was 1.9 percent. So where did all that liquidity go that the Fed's provided since March?

SWONK: It went through cap auction.

RUTLEDGE: It has been sucked back out of the system --

SWONK: That is just wrong. It has not.

RUTLEDGE: It has been sucked back out of the system by sterilization -

SWONK: That is just wrong, blatantly wrong.

RUTLEDGE: Well, the Fed has sold $300 billion worth of Treasury --

SWONK: If it had been sucked back out of the system by sterilization we wouldn't have had a half percent hedge funds rate.

RUTLEDGE: Listen, Diane a I let you talk and make your point, which I believe is wrong.

SWONK: Well, you know it's dangerous.

(CROSS TALK)

RUTLEDGE: What's wrong about it is -

SWONK: I think it's dangerous what you're saying as well. It's dangerous.

RUTLEDGE: Yes, it's dangerous what they did. Listen, they sold Treasury bills to sterilize the increase in reserves from the TAF auctions, which is means every dollar that went to a sick bank came out of reserves of a healthy bank, until three weeks ago the Fed was making the situation worse, not better.

(CROSS TALK)

ROMANS: We need some translation (ph).

(CROSS TALK)

RUTLEDGE: Now they have shifted policy.

ROMANS: TAF is -

(CROSS TALK)

RUTLEDGE: Now they've shifted policy to increase reserves.

VELSHI: I'm gong to hold - I want to - actually, I wish we had sort of a channel where we could continue the economist conversation because it's actually very, very smart. I want to ask Ryan to just step in here for a second for those of us who aren't going to understand how that is affecting us.

Ryan, I wan to ask you. We do have one issue with a lot of our viewers who are looking this right now. And they're thinking, OK, maybe what I'm saying about reaching a bottom on the market might be the case. Maybe Christine says, look, that could be very dangerous. But the bottom line the bottom line is you have debt, you have a mortgage, and you have the opportunity to invest more heavily now in your 401(k). What do you do with your money?

MACK: Basically, we have to get back to the basics. At the end of day, we can get as technical as we want to but, back to the basics -- are you budgeting? And 60 percent of America is spending more money than they earn, single month. Are you budgeting? Do you have adequate health insurance coverage for your families? Health insurance?

VELSHI: That's a big deal because that's one of the things that gets cut very quickly.

MACK: Exactly. So we have to understand getting the right places, getting the right amount of health insurance. Life insurance, in case something to your spouse. Are you using credit cards responsibly and not getting it into extremely high consumer debt? Do you have a FICO score of 750 or higher? As 40 percent of this country has a FICO score of 750 or higher. You know, 30 million people have FICO scores of 620 or lower. So we have to do back to the basics. And then, once we get to the basics, putting money into high-yield savings accounts, such as One United, Immigrant Direct, and things of those nature, so that is 3.75 percent, FDIC insured for $250,000. Then we can go into investing in the market.

VELSHI: So, that's a good point. So don't run into this stuff. By the way a lot of what Ryan's talked about, you can go to CNNMoney.com and click on the personal finance tab and go to Money 101 and do yourself a favor. It's a fantastic time to learn about some of those expressions that Ryan was just talking about. Once you do that, we can graduate to the stuff that John Rutledge and Diane Swonk were talking about. (CROSS TALK)

We are honored to have them both.

ROMANS: But your job and your money, your job and savings these are things that you can take control of right now. Your job and your savings. The stock market is going to give you - heartburn, but your job and your savings is a basic for all your --

VELSHI: And part of my taking care of my job is getting to a commercial break.

So, in times of financial turmoil where you should invest your money? We'll tell you about some safe haven investments, places where your money can be safe. You'll want to watch this. Stay with us.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SUSAN LISOVICZ, CNN FINANCIAL CORRESPONDENT: I'm Susan Lisovicz at the New York Stock Exchange. The epicenter for the worst week ever for the Dow industrials. The Dow and S&P 500 have now recorded eight straight sell-offs, but Friday's session was especially remarkable for its volatility. After plunging nearly 700 points within minute of the open the blue chips quickly clawed their way back into positive territory. Traders cheered, desperate for any sign of an end to the freefall.

The bulls and bears battled on with market direction changing nearly a dozen times more. There was hope that the G7 would issue measures to shore up the global banking system and there was despair that previous measures have yet to show any real improvement.

This week investors will pour over reports on inflation, housing and retail sales, as well as the deluge of corporate earnings from such companies as Citigroup, Intel and Coca-Cola. Now back to YOUR MONEY.

(END VIDEO CLIP)

ROMANS: If you are heavily invested in the stock market, better sit down when you open this month's statement. Chances are -- well, we know for certain it's not pretty.

VELSHI: Yeah, I don't know what you'd be invested in for it to be pretty. If you're worried about your 401(k) plan you're in good company. CNN's Deb Feyerick has more.

(BEGIN VIDEO CLIP)

DEBORAH FEYERICK, CNN CORRESPONDENT (voice over): As the Dow dropped below 10,000, everywhere brokers and financial advisers were fielding calls from thousands of investors.

UNIDENTIFIED MALE: You are going to be some transfers from those banks and rolling them over

FEYERICK: Getting messages like this one.

GREG OLSON, PARTNER, LENOX ADVISORS: "I know it's the wrong time to sell," he just said, "but I have to pull the money out because I can't take this anymore. "

FEYERICK: Greg Olson is a partner with Manhattan's Lenox Advisors.

(On camera): People who you wouldn't think would panic are now calling you.

OLSON: Sure.

FEYERICK: They're worried.

OLSON: Yes.

FEYERICK: They're saying what?

OLSON: They want to know when is the pain going to stop? And the answer to that question is we don't know.

FEYERICK: Are they're saying, I can't do this, pull me out?

OLSON: You have some clients that are very upset because they thought they had a higher level of risk tolerance than they actually did. They're making the decision to pull out because they want to sleep at night knowing there can't be any more losses.

FEYERICK (voice over): Olsen says his advice depends how much time and how much money clients have.

OLSON: It's the person that has the lesser amount of money to invest that you're worried about because they can't afford to have these types of losses.

Anybody who has a long-term time horizon, a 10, 20-year time horizon, at this point it's not the time to make any rash decisions.

FEYERICK: As for investors nearing retirement.

(On camera): You're actually telling some people that they may want to consider putting off their retirement?

OLSON: I had that conversation - it was a very difficult conversation with a couple last week, and it's a very difficult conversation to have.

FEYERICK: I think a lot of people are re-thinking just how good of a bet the stock market is. What is your advice?

OLSON: Well, long-term the stock market has always been the best place to be. As long as you don't have to pull the money out today, you didn't lose anything. FEYERICK: As for when it will stop? That's something even the best advisers can't answer. Deborah Feyerick, CNN, New York.

(END VIDEOTAPE)

ROMANS: We can't answer it either.

VELSHI: And that is the definition of uncertainty. In times like these investors are running for safety. Many are choosing gold and Treasury bills. Is this where your money should be right now?

ROMANS: At least some of it, may be. Stephen Leeb, president of Leeb Capital Management, and Frank Holmes, CEO of U.S. Global Investors, and author of "The Gold Watcher" joins us now.

This is the question, Stephen, I hear from everyone. Is my money safe in the bank? Should I be buying T-bills? Should I be buying gold? Should I be running for the exits? Should I dig a hole in my backyard? Is it getting hysterical?

STEPHEN LEEB, LEEB CAPITAL MANAGEMENT: All of the above, no.

(LAUGHTER)

First of all, your money is safe in the bank. Second of all this will end. I mean, no one should be brave enough -- or no one is smart enough to say exactly where it will end - but it will end, Christine and Ali.

I mean, basically there are two kinds of problems in this world. There are those you cannot solve with money. If an asteroid were headed to the earth then you dig holes. Because there is no way to solve that problem.

But this is a problem unlike any other, admittedly, that - certainly, I've seen and I'm a lot older than you guys. But it is still a problem that fundamentally can be solved by money. It's a question of how much money I need. Obviously, $700 billion did not do the trick. Maybe it will be five or six times that, but we do have countries meeting today -- I mean, this weekend and I think that they will come up with the right solution. I have faith. That's what you have to believe.

VELSHI: Right. Because otherwise you have nothing right now.

Frank, you are an expert on gold. And gold is a topic that comes up a lot even from people who aren't interested in it, because they think of it as an alternative to their investments in the stock market, or wherever else they may invest. Tell me what the average investor, our viewer, should be thinking about gold right now in relation to their portfolio?

FRANK HOLMES, CEO, U.S. GLOBAL INVESTORS: First of all, you don't buy gold to get rich. It's like having car insurance. You don't buy to see if you can have an accident to collect. You just want to make sure that you have some exposure to the asset class. And we've always advocated that investors consider 5 percent into bullion or gold ETF and 5 percent into unhedged gold stocks.

VELSHI: OK, let's just talk about that for a second. Bullion or ETFs? ETFs are exchange traded funds that you can buy very easily and they are a bit of a basket. They reflect the price of gold versus companies, which mine for gold and produce gold. That's the distinction we're talking about?

HOLMES: Correct. And interestingly enough, year to date, the bullion itself has outperformed the gold stocks. As gold stocks have been a source of liquidity, they have been pounded down. But historically there's a huge catch up and this week we saw some huge moves in the some of the gold, South African gold equities. So I think that exposure is just prudent for investors.

ROMANS: What do you think, Stephen? Is gold - should it be a small part of your portfolio? And is it too late to get into gold?

LEEB: No, it's not. I agree with Frank. But I think more than insurance, in turbulent times gold really tends to shine, no pun intended. For example, during the Depression, gold appreciated to a 20 percent annualized rate, during the worst part of the Depression.

During the 1970s, gold went up. Gold went up, gold stocks, gold, etc cetera, precious metals at about a 20 percent or 25 percent, after inflation, annualized rate. That's more than insurance. I mean, that really is really is protecting you. And if you really do believe in turbulent times -- and it's hard not to at this point.

VELSHI: Right.

LEEB: I think gold makes a lot of sense, more than insurance.

VELSHI: It is. We talk about hedging and hedge fund, but for the average investor the idea of gold -- and some of the funds that performed well in turbulent times, when I say well I mean they don't go down as much as so many other fund goes down -- are often hedged in something like gold.

Frank , tell me again, Stephen had said the same thing on the show that you might sleep with gold coins under your pillow. Buying gold bouillon, or buying gold coins, it is one of those actually interesting industries where there is not a major spread. It is actually a good investment either way. How do I buy gold?

HOLMES: It's a great question because gold is - in fact, there is a shortage of gold coins right now. You are seeing people lining up, in particular in Europe and Germany, to buy gold coins. I think you have to wait if you want to go and buy. You'll have to pay a slight premium and there are coin dealers all over the U.S. but it's important that you go and take a look at the gold you're buying.

ROMANS: Let me ask -

(CROSS TALK)

VELSHI: But -- sorry. Should I be buying it as coins, or can I buy these ETFs like you say. If I agree to what you say, right now and I want to have gold in my portfolio by the end of the day. What's the best way to do it?

HOLMES: It's your level of fear, Ali. If you're extremely fearful the government will confiscate your gold behind that gold ETF, then people want to go and buy gold. And there are people that talk like that. So they want to own at the tangible part. I buy gold coins all of the time and I give them away as gifts to my family and that's the process I have.

ROMANS: All right, Frank Holmes, thank you so much. Stephen Leeb, we didn't get to the T bills, like I wanted to but we covered the gold. We really covered the gold.

LEEB: I have one quick comment on it, if you want.

ROMANS: T-bills. Quick comment.

LEEB: OK, T-bonds, if you believe in deflation, that this is not going to work out, probably the best investment that you can make. During the 1930s if you invested in government long-term bonds, you doubled your money. T-bills are OK, T-bonds are better.

ROMANS: Love it. Thanks so much.

VELSHI: Very good. Stephen, thanks for the quick answer.

ROMANS: Politics and money. The polls say Barack Obama is winning over voters during the economic crisis, but which candidate has the better plan for your money?

(COMMERCIAL BREAK)

NAAMUA DELANEY, CNN ANCHOR: Hello, and I'm Naamua Delaney at the CNN headquarters in Atlanta. "Now in the News," President Bush focused on the global money crisis today. He met with finance ministers in the Group of Seven industrial nations. No specific proposals were announced, but the G-7 vows to take all necessary steps to unfreeze global credit markets.

The chief economist at the IMF, the International Monetary Fund, says stock markets could fall another 20 percent. He calls that a worst-case scenario. The IMF is warning the global economy could be in for a prolong recession.

As of today North Korea is off America's terrorism list. The move comes after North Korea agreed to U.S. nuclear inspection demands. A State Department official says North Korea will also immediately reverse actions that have taken -- they have to restart their nuclear weapons program.

Well, coming up at the top of the hour, "BALLOT BOWL." Right now back to YOUR $$$$$.

ROMANS: Welcome back to this special emergency edition of YOUR $$$$$. VELSHI: Well, you've heard the phrase, "it's the economy, stupid." It worked for the Democrats in 1992 and as we drive deeper into America's money crisis, Barack Obama's poll numbers keep getting better.

With less than a month to go before Election Day, can John McCain convince voters he's the man to lead America out of this financial crisis?

VELSHI: That's the question we've got. Here to talk about politics and money, Financial Times managing editor in the U.S., Chrystia Freeland and Joe Klein from TIME.

Welcome to both of you. This There seems to be -- there seems to a separation of people who are wanting the best answer out of the candidates about what they're going to do about the economy, and people gravitating toward Barack Obama and maybe for historical reasons, maybe because bad economies do push people toward Democrats. What's going on in this economy?

CHRYSTIA FREELAND, FINANCIAL TIMES: Well, and bad economies also push people away from the incumbent party. The Republicans have been in the White House for the past eight years and so there a very natural tendency to pick the opposition party. I think that is a real strong suit for the Democrats.

The other thing is, one thing that has happened is we are at the end of the Reagan era. This is the end of the era of deregulation. We have the government coming in. Hank Paulson, Republican secretary of the treasury, he will end up nationalizing more than what (INAUDIBLE) Putin has.

The Democrats can sleep much more credibly about saying, we are the party of government. We believe in government working effectively. It's hard for John McCain to say that when he has been a deregulator for all of his political career.

ROMANS: Joe, what can he do? Can he do anything at this late stage to reassert himself as an economic Mr. Fix-it?

JOE KLEIN, TIME: Well, it's going to be hard because he has never really cared about these issues. I mean, he has always been a foreign policy, national security policy guy. But if you look at what's happening in this election, it is not only that people want to see government regulating the economy. They want to see government regulating everything.

I mean, during the debate the other night, one of Barack Obama's best moments was when he said health care is a right, not a privilege, and when he said that the government has to crack down on insurance companies that are cheating their -- you know, their customers.

You know, the Republicans have -- you're right, the Republicans have gotten this the old-fashioned way, as the Smith Barney ads used, they've earned this situation by being profligate. VELSHI: So what happens now, Chrystia? We maybe see markets continuing to go down, we maybe see them selling, but that actually, while it has dominated our discussion for a couple of weeks, isn't really the problem in the economy. There are far deeper problems about housing, about unemployment, about health care. You know...

ROMANS: If the stock market recovered today, you will still have banks in trouble and you're still going to have a lot of people going to lose their jobs.

(CROSSTALK)

FREELAND: I think that's the really, really scary thing is actually we are just at the beginning of the beginning of this crisis. We're seeing the financial crisis. We haven't yet seen the crisis in the rest of the non-financial economy and inevitably a financial crisis like the one we're experiencing is followed by a recession in the rest of the economy.

VELSHI: Right.

FREELAND: So things, I think, are going get worse in the lives of ordinary people, those of us who don't happen to run hedge fund, for example. And so I think that it will continue to dominate the campaign.

ROMANS: Well, that adds something really troublesome to the next president.

KLEIN: Yes. You know, a crash is what happens at the beginning of an economic crisis.

VELSHI: Very important point to continue to make. That when we get out of this market situation, that is not the end of the problem.

KLEIN: Right. And I think this is one area where McCain has come up with absolutely no ideas at all. Obama has a couple of idea that even some Republicans like. Like, he wants to start an infrastructure bank rather than having bridges and tunnels and stuff like that go through the earmarks process he wants to set up something like the Federal Reserve Board with independent governors who would vote on every infrastructure project.

He wants to give $7 billion or $8 billion, which used to be real money, to it each year, and have those projects approved, that way creating jobs. He also wants to do $15 billion a year in alternative energy, and I think those kind of stimulus projects are going to be important for two reasons.

One, to put people to work, and secondly, we've been falling behind the rest of the world in things like high-tech infrastructure, and if we want to have our economy come back, we're going to have to catch up.

ROMANS: What about this John McCain plan for buying mortgages -- troubled mortgages? I mean, that... VELSHI: He kind of dropped that in, in the debate. And then it turned out that it was a real plan that he's suggesting that would be very appealing to the average American who is so angry about this bailout and this mess, the idea that somebody will actually renegotiate my mortgage at a lower price, you know, that actually reflects the value of my home?

FREELAND: Sure. I don't think it's a bad plan and it's actually quite similar to something that Hillary Clinton had been suggesting for some time. The problem is right now in terms of the actual financial tools which the government has to bring to their own crisis. It's not about mortgages or about foreclosures anymore, it is about a financial crisis, it's about esoteric things like the credit markets, like commercial-backed paper.

VELSHI: Right.

KLEIN: But also, I think that, you know, it was kind of the Sarah Palin of economic plans. He just dropped it in.

VELSHI: Right.

KLEIN: Correct me if I'm wrong, but I think that there are provisions in the bailout -- $700 billion bailout package for a version of this.

VELSHI: Right.

KLEIN: You wouldn't -- you know, the homeowners would get their renegotiated mortgages, but the banks would only get maybe 80 or 90 percent of the value of the mortgage. This is a bailout bill for banks.

VELSHI: Well, there are a lot of people -- a lot of the e-mails and the phone calls we've been getting...

ROMANS: Are angry.

VELSHI: Are angry. But they're also about the fact that, you know, both of you spend your life communicating these things that they wished the government had from the beginning of this crisis done a better job of communicating the connection to individuals. And we're getting a lot of that about the candidates too.

Could they just -- could they start to talk about things in the way that they're going to help people? Because unfortunately, a crisis in commercial paper, that's a little chewy to understand.

(CROSSTALK)

ROMANS: I mean, the president of the United States took to the cameras on Friday and talked about the commercial paper market, and I mean, that tells you what kind of world we live in where...

VELSHI: You and I hadn't even largely said the words "commercial paper" on television in years. ROMANS: You know, I mean, sort of like a deadly thing to talk about on television. But you know, this is now blown up into Main Street space.

FREELAND: Yes, and I think that failure to communicate is actually -- you know, I think Hank Paulson has done, in many ways, a great job in a very, very testing time. But the failure to communicate I think is one criticism that can be leveled against him. Had he communicated about the rescue package right at the beginning more effectively, things may not have gotten this bad.

KLEIN: Well you know, I want to go back to that debate again on Tuesday night. There is a man, Oliver Clark, a citizen who wanted to know how this bailout package would affect his friends who are in trouble. And McCain went off on Fannie Mae and Freddie Mac, these, you know, incomprehensible institutions.

And then Obama looked at him and he said, look, here's the problem, banks aren't lending, if they're not lending to the business that you work for, it's going to be hard for your business to make a payroll, they may have to lay you off, they may have to contract.

That kind of...

VELSHI: Conversation.

KLEIN: ... straight talk is a beginning, but then on the other hand, Obama -- neither Obama and nor McCain would say that things are going get worse, which they clearly are.

VELSHI: Very good points. OK. Guys, good to see you both. Chrystia and Joe, thanks very much.

Coming up next on this special emergency edition of YOUR $$$$$, why the financial crisis could dramatically change your holiday shopping season.

(COMMERCIAL BREAK)

VELSHI: The holidays are fast approaching, the financial crisis could hit holiday sales hard.

ROMANS: Might Americans see the financial equivalent of the "Grinch that Stole Christmas"? Jennifer Westhoven joins us now.

JENNIFER WESTHOVEN, CNN CORRESPONDENT: Well, you know, I think we hear a lot about the credit crunch. And it seems like something that's happening in London, to small businesses, but how is it really going to affect you? So that's what we wanted to take a look into, the idea that stores are having a really hard time and that that could make a big difference when it comes to you at the holiday season.

(BEGIN VIDEOTAPE)

WESTHOVEN (voice-over): The financial crisis that has gripped Wall Street and Washington could mean quieter holidays for everyone. Christmas may be scaled back this year as many American shoppers and stores struggle to make ends meet.

PETER MORICI, UNIV. OF MD. SCHOOL OF BUSINESS: Consumers face several challenges, high gas prices, some have lost their jobs or have family members that have lost their jobs, and there is the high cost of credit cards these days. Rates have gone up.

WESTHOVEN: That means tighter holiday budgets for millions of Americans. Retail analysts say this season will be the slowest growth in holiday sales since 2002. On top of weak spending, credit markets are locked up. Like all businesses, retailers are having a hard time getting credit, credit that they need to buy holiday merchandise.

MORICI: When you go to Macy's and you look at a coffee pot, Macy's doesn't really own that coffee pot. They borrowed money to pay the vendor and they'll repay the vendor when you pay them. So they need what we call commercial credit.

WESTHOVEN: It's do or die for many stores, squeezed on both ends by suppliers and buyers. Economists say some businesses won't even make it to the holidays. It all adds up to more pressure in a weak job market.

Hundreds of thousands of Americans make extra money around the holidays by taking a seasonal job, but experts say this year's hiring will likely fall well sort of last year.

JOHN CHALLENGER, CHALLENGER GRAY & CHRISTMAS: This year I think it's going to be even worse, there won't be as many people in the stores and they won't be there as long.

WESTHOVEN: Analysts aren't saying that the Grinch will steal Christmas altogether.

SCOTT KRUGMAN, NATIONAL RETAIL FEDERATION: Let's put it this way, I don't think anyone is canceling Christmas. Holiday spending, it's important to consumers. It actually becomes necessity spending because it's emotional.

WESTHOVEN: But Americans may get a chance, much like those whos down in Whoville, to remember the true meaning of the holidays isn't about the gifts.

(END VIDEOTAPE)

WESTHOVEN: I mean, it's just such a somber time, right. So much of the news that we're seeing in terms of the money headlines are really tough.

ROMANS: You know, the best gift you can give your kid though, we talk to the personal finance experts all the time.

VELSHI: A hug. It's a hug.

(CROSSTALK)

VELSHI: That's all you can afford this year. (CROSSTALK)

ROMANS: Teach them to be smart about their money and not going out and buying a bunch of garbage that they don't need. I mean, here I'm going to get on my high horse, and I guess my kids are too young...

(CROSSTALK)

ROMANS: Mom, I really have to have X.

VELSHI: A year ago you and I would have had had this argument. And you know what...

(CROSSTALK)

VELSHI: I'm on your side. Everybody is getting a hug for Christmas this year.

ROMANS: No.

VELSHI: People...

(ROMANS: You can still give gifts, but we don't need to be crazy. We don't need to go out with borrowed money because that's what gets us into trouble in the first place.

WESTHOVEN: That's amazing. And unfortunately, I mean, you can teach that to your children, it's just that so many people are learning that really the hard way.

ROMANS: All right. Jen Westhoven, she's going to stick around.

Wall Street suffered some historic losses this week. Have we reached the bottom of the financial crisis? Our CNNMoney team is going to try to help us find out next.

(COMMERCIAL BREAK)

ROMANS: OK. Time to take a breath. Are we still breathing?

VELSHI: You're still breathing, take a breath.

ROMANS: And we're going to try to figure out where this all goes from here.

VELSHI: The CNNMoney team is with us. CNN HEADLINE NEWS correspondent Jennifer Westhoven, CNN's Susan Lisovicz is with us as well, from the New York Stock Exchange. Paul La Monica, editor-at- large for cnnmoney.com.

Susan, I feel you should just smile and not say anything because I don't know what you can possibly say about what is next for the stock market, but give it a shot.

SUSAN LISOVICZ, CNN CORRESPONDENT: Well, I mean, we're living in extraordinary times, I mean, it's as simple as that. You know, this problem is historic in magnitude. The solutions that are being proposed are historic. And the sell-off is historic. And we really don't know that it's done yet.

What I think everyone is waiting for is some sort of sign that we're at a level where even though there's a lot of uncertainty in the marketplace, we really don't know how these plans are going to work out, how long they're going to take, where the jobless rate will ultimately go.

There will be a point when everybody says those are just ridiculously cheap stocks. And we got glimpses of that Friday. That was a very bullish sign. So what, the rally lasted for a nanosecond. But the fact is there was a nearly 700-point plunge in the Dow and within 35 minutes it went into positive territory, prompting a huge response.

VELSHI: That means somebody was buying stocks. Somebody thought it was a good idea to buy.

LISOVICZ: Like, GM, for instance, GM below $5 for the first time since the early 1950s. And people went in and were buying it despite the uncertainty about that company.

ROMANS: Here's what I'm concerned about, though, I'm concerned about all of the people who are not in the stock market and for whom the stock market is simply a barometer or a gauge that's showing all of the other garbage that's happening in the economy.

And we heard Diane Swonk say we're going to have more job losses, we're going to have more trouble in the economy. I mean, this is very important for people to understand that we are in the beginning of something that is going to thrash its way out for some time, right?

WESTHOVEN: Yes. And I mean, I just think this is a little bit trading floor, but I think it's the big picture. You have got guys on this trading floor who were there and worried when there was an assassination attempt against Ronald Reagan.

In the 1973 bear market, they remember all kinds of crises on Wall Street and they say we've never seen anything like this before. There was never a time when, you know, the stock market was at risk, but there was never a time when they thought the entire financial system was at risk. And that's what is really going to play out in the economy and on all of these businesses.

VELSHI: And, Paul, I mean, it then goes -- we've still got this housing crisis. It didn't get away. We've still got this jobs crisis. The only problem that might going away is the fact that we've got oil under $90 a barrel.

PAUL LA MONICA, CNNMONEY.COM: Yes, I know, wow. We don't have that commodity inflation anymore. That's a big cause for celebration, isn't it? Seriously, though, I think that what Susan pointed out is very interesting. There is still a lot of fear. So even though some people may be dipping their toes and thinking there are bargains, then everyone starts to get scared again after a brief little rally.

VELSHI: Quick question for everyone. I'm going to put you all on the spot. We've all been working so hard. Has anybody here all just bailed out of the stock market? When you hear people -- everyone is asking me, have I bailed out, have I bailed out?

Susan, I mean, are you just staying the course?

LISOVICZ: Absolutely. In fact, I have to say, I bought.

ROMANS: Ooh. Paul?

LA MONICA: I've just been contributing to my 401(k) as I have been. I haven't done anything differently. You know, I haven't gone in and actually bought anything. But I'm too busy working to...

(LAUGHTER)

(CROSSTALK)

VELSHI: Right. He's watching out for his job.

WESTHOVEN: You know, of course, I'm still contributing, of course. And I think that's something that's really important. I did do something though. I re-looked at my asset allocation.

VELSHI: Right.

WESTHOVEN: And I realized that I actually had gone over in terms of international stocks. And I didn't necessarily want to be there. You know, frankly, if the lion is coming at me, I'm not necessarily going to stand there. So I just pared that down back to what would really be more appropriate.

VELSHI: I'm the same as Paul. I've stuck to my allocation. I've been putting it in. And that's what it is.

ROMANS: Me too. And I've started a new 529, because now I've got two kids, I have got to start putting money away to pay for a college bill 18 years out. You know, I mean, I'm a little freaked but...

LISOVICZ: Eighteen years you'll recover your losses.

(LAUGHTER)

LA MONICA: Things -- yes, things are cheap.

ROMANS: All right. Everyone is sticking with us. Don't go away.

For most people, the economy can be broken down to one simple factor, do I have a job? We're going to show you where the jobs are and where they're not. But here first, this week's "Right on Your Money."

(BEGIN VIDEOTAPE)

ROMANS (voice-over): Keeping your money safe is on the top of so many minds these days, but there's one basic step everyone out there can take. Make sure to zero in on one key part of the $700 billion bailout plan that could affect you.

JEANNE SAHADI, CNNMONEY.COM: You know, the money that the FDIC will insure in your bank account, checking or savings, has gone up as a result of the financial rescue plan. It used to be that they would cover $100,000 if your bank went under, now they're going to cover $250,000 until December 31st, 2009.

ROMANS: Raising FDIC insurance coverage means you can have confidence in your bank.

SAHADI: It should be noted that no one who has put money in an FDIC-insured institution has ever lost one penny up to the FDIC limit. So by increasing that limit it's really reassuring consumers that no matter what happens to their bank, they're going to be covered up to $250,000. And it's particularly good for small business owners.

ROMANS: But remember, when it comes to your coverage, it's not always as simple as $250,000 per person per bank. Having trusts, business accounts, and joint accounts at the same institution can get tricky.

And you may be covered for more than $250,000. Go to myfdicinsurance.gov to calculate for yourself. And that's this week's "Right on Your Money."

(END VIDEOTAPE)

ROMANS: We are back with our crack CNNMoney team, CNN's Susan Lisovicz, CNN HEADLINE NEWS correspondent Jennifer Westhoven, and Paul La Monica, editor-at-large for cnnmoney.com.

Now, jobs, jobs, jobs. We keep saying you've got to keep control of your own job. This is the most important thing about your own economy. Take a look. Ali, you can describe this pretty well. This is that unemployment by state map this you love...

(CROSSTALK)

VELSHI: Yes. I think it's really important. It takes the national average and then we measure the states that are -- have a better -- like a higher unemployment rate than the national average and a lower unemployment rate.

ROMANS: So green is good here.

VELSHI: Green is good. Red is bad. And that sort of middle color...

ROMANS: Texas has a pretty good jobs market. And Mississippi has not a good job market. Michigan doesn't have a good -- Rhode Island doesn't have a good one, California is having trouble, and Nevada as well.

I mean, where you are in the world and what your career is makes a big difference for how you're going to get through here.

VELSHI: And I think this is relevant if you're mobile and able to move and look at -- you know, it is one of those elements. Don't move to a green state because you saw a map on CNN. But Christine also makes the points that there are people stuck in some of those places with bad job markets who are not mobile, they can't move.

And that is tough for them. If you're in Michigan and you -- and a plant closes down again, how do you sell your house and move your family?

ROMANS: We've seen retail job losses, Jennifer just did this amazing piece about what the retail market is going to be like. I mean, what are we telling people about the job situation? Because we know we're going to have more jobs lost. If it's a plain vanilla recession, we are, if it's something worse than that, we are, right?

WESTHOVEN: Right. I think it's just about being cautious about your job right now, right? And especially -- I don't know if you -- you know, there have been some reports out by some research groups saying that there are a significant number of states that are at-risk for running out of unemployment benefits.

VELSHI: Wow.

WESTHOVEN: That the funds that they keep for that may run out by spring, California in particular.

VELSHI: Because that's part of the whole credit freeze. (INAUDIBLE) that California has to borrow money too.

Hey, Paul La Monica is looking out for his job by not day-trading while he is working, but that is -- jobs really is the underpinning of our prosperity. If we start losing jobs, it is much more costly to try and create new ones than to save existing ones.

LA MONICA: Yes, it definitely is. And obviously part of the problem is you can only say for so long that just hunker down and make sure you prove your worth to your employer. Obviously there is certainly something to be said for that. But if you work for say GM or an airline, you may be one of the best employees they have, but those are just two industries that are in such fundamental problems right now.

A lot of people might still unfortunately lose their jobs.

ROMANS: You know, Susan, so many people have told me that, make no mistake, every boss, anybody with a head count in this country knows their top 10 percent and their bottom 10 percent. I'm sure you're in the top 10 percent.

LISOVICZ: Well, I think our job security is safe, I think, collectively for a little while at least, guys. But, you know, I think that -- you know, look, there's a reason why there is this urgency in Washington. They want to free up the credit markets so a normal cyclical downturn doesn't become worse.

But having said that, I think we're going to see profound changes in the American psyche, in the consumer psyche. My dad grew up during the Depression and that generation of people knew how to save for a rainy day, knew how to spend within their means.

And indeed, my parents are living in the home they bought. They were able to buy a second home put four kids through college. And I think that, you know, we lost that somewhere along the line.

ROMANS: And it's raining, it's raining pretty hard.

LISOVICZ: And it isn't a bad thing for all of us to learn that. I mean, unfortunately, for some people, it's going to be much worse than that. And unjustly so. But I think that we are going to see an extreme change in mindset.

VELSHI: Susan, thanks very much. Good to see you. And we'll be doing this lots more.

ROMANS: All right. Jennifer Westhoven and Paul La Monica, too.

Make sure you join us every week for YOUR $$$$$, Saturdays at 1:00 p.m. Eastern, Sundays at 3:00 right here on CNN.

VELSHI: The economy is "ISSUE #1," and we here at CNN are committed to covering it for you. Stay with the CNNMoney team every day for the latest news on your money. Log on 24-7 to cnnmoney.com.

ROMANS: Have a great weekend.

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