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Emergency Edition: Jobs Are Disappearing Fast; What Is Needed to Make a Dent in the Unemployment Rate and Get Us Back on Track?; CEO Compensation: What Needs to Be Done
Aired February 7, 2009 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, CNN HOST: This is an emergency edition of YOUR MONEY. I'm Christine Romans.
Your financial security depends on your job and American jobs are disappearing fast. Employers cut 598,000 jobs last month and that's the most jobs lost in a single month in 34 years, the unemployment rate stands at 7.6 percent. That means 11.5 million of you are now out of work.
The numbers underscore the emergency facing this administration. President Obama says his stimulus will create or save 3 to 4 million jobs, but will it work and is it enough? The unemployment lines grow longer every week. A staggering 626,000 new claims for unemployment just last week, a level not seen in more than 25 years -- Ali.
ALI VELSHI, CNN HOST: But is it enough? What is needed to make a dent in the unemployment rate and get us back on track and working in this country? Well, here with the answers, hopefully, economist Peter Morici and in the studio with us economist Stephen Leeb and Diane Brady, senior writer for "Businessweek." Welcome to you all, thank you for being here.
Peter, you've written a new book called "Game Over" which I actually just finished reading. You're not concerned that we're not going to get out of this situation that we're in. You actually are worried about whether the recovery will be too strong.
STEPHEN LEEB, AUTHOR, "GAME OVER:" I fear it will be too strong. I think we're seeing data for the first time since maybe last summer. We're starting to see data better than expectations and yes, today's employment report was horrible. It was miserable. We lost another 600,000 jobs, but employment tends to be a lagging indicator.
VELSHI: Which means its reflecting things that have already happened and not the future.
ROMANS: What do you think in particular is better than expected?
LEEB: Oh, the ISM.
ROMANS: The Manufacturing Survey.
LEEB: The Manufacturing Survey and on both industrial production and service sector. That's 100 percent of the economy, Christine.
LEEB: And in the service sector you have a number that doesn't necessarily indicate we're declining that much anymore. It was quite a bit better than expected and other numbers ...
VELSHI: Pending home sales that looked a little bit better.
LEEB: Right. Mortgage affordability is way -- housing affordable is way at record level.
ROMANS: We have gotten into this position now we're scrutinizing everything.
Mind reports --? It was good!
VELSHI: Diane, the senate, whatever comes out of the senate there's some discussion about adding to the stimulus bill, a proposal to allow homebuyers a credit, a $15,000 credit when they are buying a home to encourage people who might be digging around. Stephen talked about mortgage affordability to buy a home. You think it's a joke.
DIANE BRADY, SENIOR WRITER, "BUSINESSWEEK:" I think it's basically misguided because the problem here is we basically have been borrowing money we didn't have to buy things we didn't need. Americans are fundamentally resetting their expectations.
I don't think throwing a few thousand at them for a car or for a home is going to do that much. You're not going to stimulate spending and the reality is the real issue is liquidity and the real issue is not that we don't have enough Americans owning homes; it's that they can't afford the homes they have.
ROMANS: Peter Morici, you say the whole stimulus is too big. You say we're going to spend all this money and be back in the same situation we were beforehand, right?
PROF. PETER MORICI, UNIVERSITY OF MARYLAND SCHOOL OF BUSINESS: The reason we need a stimulus package is because there's not enough demand in the economy and it's not just the credit bubble bursting, but it's the huge trade deficit that grew and grew during the Bush years over 5 percent of GDP. The fact is we just don't export enough services to pay for the manufacturers we now import on a net basis.
We're going to have to do something about that trade deficit or as the stimulus package has its effect the deficit will grow again. It will drain aggregate demand and the stimulus package will end and the economy will fall back.
ROMANS: Your issue isn't the stimulus package. Your issue is the underlying imbalances in the economy that work at odds with the stimulus.
MORICI: Exactly. China and other Asian exporters have produced too much and don't consume enough, the United States to a lesser extent the Europeans consume to much, don't produce enough. We have to get those imbalances corrected. We all need to import less oil which means we really have to push out on these alternative vehicles.
VELSHI: Stephen, can you explain to us for those in the audience not up to speed with this discussion. What is the danger of a trade deficit? We understand the dangers of job losses and housing collapse and high energy losses. What is the bad part about a trade deficit? And that we buy more from other countries than we sell to them.
LEEB: The real bad part is no one may want to end upholding the dollar and hold our debt. There may too many dollars out there. We've been blessed in this country because the dollar is the reserved currency. Things like oil in particular are priced in dollars, but where the trade deficit to grow so great and the dollar have overwhelmed everything else in the Arab countries. OPEC for instance decided to price oil in something other than dollars, I mean, we would have just a massive problem.
All these Treasury bonds that the Chinese and the Middle Eastern countries are buying, they wouldn't want to own them anymore. They'd rather own a basket of currency than the dollar.
VELSHI: The country would be like an American that can't get more credit. The country would be stuck with high credit cards and no more ability to borrow money to buy more stocks.
BRADY: Yes. The reality is we're setting ourselves up for hyperinflation and I know everybody talks about deflation at this point but that is a real risk. And you're already seeing in places like the Middle East moving toward the Euro. So I think it's very likely that the U.S. dollar would whatever strength we see right now will diminish very quickly because we're looking at a trillion dollar deficit.
ROMANS: Peter, let me ask you real quickly about the jobs number this week. If you're a labor economist you follow these things so closely. That number, Ali and I were pretty shaken to be quite honest. It was one of the worst numbers for the people that lost a job in the month.
VELSHI: It's the fourth worst month ever on record.
ROMANS: Your perspective.
MORICI: We're breaking all kinds of records here and the wrong kind. This is the worst decline in employment we've seen since the great depression. I don't believe that it's over. I believe we'll have several more months at more than half a million jobs and we'll continue to bleed jobs until the middle of the year. The rate of decline may be slowing as Peter suggests, but the decline continues and we won't see noticeable improvements in anyone's life until the fourth quarter of this year.
VELSHI: All right. We are going to -- this is a good discussion about the things that are affecting the economy and an important one for you to listen to, but we also want to talk about specifically how it affects you.
ROMANS: All right. Could limits on CEO pay be a bad thing for you in your town and how to avoid the tax trouble plaguing some of the Obama cabinet nominees?
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: So we also have to set in place some rules of the road.
(END VIDEO CLIP)
ROMANS: President Barack Obama talking to our own Anderson Cooper about CEO compensation, a topic that sparked plenty of outrage this week. Conversation of course for companies who are on the taxpayer dime.
VELSHI: It's a little bit outrageous. It's also a little bit of a red herring and sort of a bit of a downside to capping CEO pay. We're back now with economist Peter Morici. Also joining us is personal wealth adviser Louis Barajas and with us in studio Diane Brady, senior writers for "Businessweek" and economist Stephen Leeb.
Peter, let's start with you. I say it is a red herring, I understand there's a great deal of frustration out there that companies that the taxpayers have bailed out are doing gross things with their spending, buying corporate jets, refinancing office, and putting out lots of bonuses. There's also probably some misunderstanding amongst the general public about how Wall Street is compensated that they get paid a certain way and part of it is made out of bonuses. What do you make of it?
MORICI: Well, they certainly get paid a certain way and part of it is out of bonuses, but the system is out of control. I can get a kid, give him an MBA at Maryland and send him to New York and five years later he's worth $10 million a year. Last year the securities companies in New York lost $25 billion, paid $25 billion in bonuses, why, how, I don't know, and they take money from the government. That's absurd.
ROMANS: Diane, I want to tell you I think there is a whole outrage outside thing about the CEO pay. I think it is absurd, but I also think it's a very small part of the story. I think the president has to regain confidence in Wall Street and confidence in the system and part of that is a populous push to lay down the law because he might have to have some more money.
BRADY: And the point is people are angry and you can't diminish the fact that they're looking at people taking huge bonuses. So I think the cap actually makes sense. I think anyone on Wall Street who thinks its business as usual is obviously diluted. There are many ways to get your money. For example, you can have stock, also you can maybe delay the payments so it's not so front loaded that they can walk away with millions. VELSHI: I also think that part of what the president suggested is, is actually creative, so a cap initially, but all sorts of restricted stock that you get once you've paid the government back with interest. That's interesting.
LEEB: The other thing is it's not retroactive. The people that have needed the money the moment they get paid whatever they want. AIG who basically utterly mismanaged and ruined the largest insurance company in the world, they don't apply.
VELSHI: It's quite possibly a big chunk of the economy.
ROMANS: This is all that we have to do now is sell the stimulus and a new, financial overhaul.
VELSHI: What difference does it make to your clients? People dealing with day to day issues.
LOUIS BARAJAS, PERSONAL WEALTH ADVISOR: The people who are sitting down at the kitchen table are saying who cares what other people are earning. I need a job, I'm concerned that I'm not going to be able to put food on the table and pay the rent, I mean they've gone beyond being angry. I think that are panicking, because we're seeing a lot of people losing their job.
I have got a 23-year-old son who has recently gotten married and expecting a child in six months and they're looking for a job for a year. A lot of parents have a lot of kids graduating from college right now and they can't find jobs. The stimulus package has to help them find jobs and they have to do it right away. Because even if they give us $500 or a $1,000 rebate check, it ain't going to help, not in the short term.
ROMANS: This is the problem, we can't figure out what's the right mix. Peter Morici what is the right mix for creating jobs in the stimulus?
MORICI: Well, I think infrastructure spending and refurbishing schools, spending where you put the shovel in the ground or the government buys a product directly. And not all of that is back ended loaded.
Many municipalities around the country have lists of projects they work through as they have the money available, also a subsidy to people to buy gas-guzzlers and buy fuel-efficient cars that will keep an auto worker on the job, those are the kinds of things. Extending social programs and unemployment benefits for part-time a worker that's nonsense. That's not going to create new jobs. Buy stuff.
VELSHI: All right. Diane, let's talk about that.
ROMANS: A mean man! No -- it's not popular when you say infrastructure projects.
BRADY: I think infrastructure is important, but you have to kind of -- this is a moment. A crisis is a terrible thing to waste as some people think. You have to use this as a moment to build where the U.S. is going to go and the reality is energy is something that can easily be commercialized. There's a lot out there right now that can be put in place right away and that's one way you can stimulate jobs.
I think you really have to get export-oriented jobs again and the reality is education. This country has fallen behind. We're not going to come out of this in a pretty state if we ignore the state of education.
VELSHI: You talked about energy, and I know, Peter; this is a pet interest of yours. More than a pet interest.
ROMANS: It's an obsession.
LEEB: No. I think in terms of the stimulus package, you have to distinguish between spending and investing, and I think basically if this package is geared toward investing, doing things for our future that's going to promote ...
ROMANS: Like what?
LEEB: I'm going to say it because Ali already -- my obsession, energy infrastructure would be one of the major components of it, and I think that that is a very, very good thing. Now I happen to believe and I could be dead wrong here, that we don't need a lot of immediate stimulus in this economy. I think the economy is more or less going to take care of itself. It may take another three months of terrible jobs, but the way I think we'll have to worry is in 2010, 2011, 2012 when we'll be in the same jam we were mid-2008 except much, much worse.
VELSHI: High energy costs and high commodity costs.
LEEB: Because we don't have it. We don't have the forces to fund growth.
VELSHI: Peter, once last thing. The word's been coming around and you can't fight it. When you lose 600 jobs in a month you have people talking about depression. Ultimately we don't have a definition of the word depression, but you're on record as being one of those people who think we're here or we could be?
MORICI: Yes, I do believe that. One of the 19th century depressions and not the great depression, the economy is shifting down to a structurally lower level of employment and production because of underlying problems that are not getting fixed. The dysfunctional banks, energy dependence and the huge trade deficit. We have to fix those things if we're going to lift the economy back to its formal level and get it growing at 3 to 4 percent a year.
VELSHI: All right. So he's talking about a nicer depression.
ROMANS: It's pretty bad. They used to all be called depressions until they became known as recessions.
BRADY: You loose your job ... ROMANS: Louis Barajas, we are going to give you the final word. What would you like to see the president and Congress, what would you like to see from them in terms of the stimulus? What do you think is the best thing for America?
BARAJAS: The best thing right now is the intangible and that's confidence. Consumer confidence for the average person. The consumer confidence for those on my street. They need to hope. They need to understand that there will be jobs coming up so they can get going. Because what is happening is a lot of people that are depressed and you've seen a lot of terrible stories throughout the country of bad things happening. If we can get the entire country backed up with confidence we'll move forward.
ROMANS: I'd like to buy $50 billion of confidence. How do you do that?
VELSHI: Confidence was started in 1985 whatever the consumer confidence was then it was considered 100 and it is now 37 the lowest point it has ever been. And this is a consumer-driven economy.
Thank you to all of you. Nice to talk to you under these circumstances, at least we're getting some good information from you about what to do.
ROMANS: How the personal savings rate in this country is changing and why you should care. How to change careers the right way.
ROMANS: The most recent government data shows Ali that people are saving more money now than they have in the past. Some 3.6 percent savings.
VELSHI: It's good for them.
ROMANS: It is good. Some people are starting to realize that they are going to need a little cushion for a rainy day because it's raining.
VELSHI: It's bad for the economy and you will often hear that. That the government wants to cut out a stimulus program.
ROMANS: It's the paradox of thrift, I think.
VELSHI: Right. We want to talk about that. We want to get by the paradox of thrift and help you become more thrifty.
Lynnette Khalfani-Cox is a personal finance author and Greg McBride is a senior financial analyst with Bankrate.com. Two of our good friends, thanks to both of you for being here.
First of all, Greg, we often hear that Americans don't say that is why we are in a bit of a pickle that we are in , but if you were to save or you needed to save some money right now are there even really good options? It seems like you can't get anything for money that you save if it's invested in something that's like cash.
GREG MCBRIDE, SR. FINANCIAL ANALYST, BANKRATE.COM: Well, the best place to put it is in a high-yielding bank money market deposit account or savings account, also look at credit unions as well. The advantage here is that money is liquid and you can get to it whenever you need it so it's a great place for that emergency savings fund and here's the ironic thing.
If you shop around, you'll get yields that are about 3 percent which doesn't sound like much, but relative to inflation which has dropped dramatically, you are better off now with interest rates lower than you were six months ago when interest rates were higher, but inflation was much higher.
ROMANS: Now here is the thing, one of the reasons why people are starting to save more is because they're watching the news about job losses and about foreclosures.
MCBRIDE: They are scared.
ROMANS: They are scared and they know that they've got to have a rainy day fund.
LYNNETTE KHALFANI-COX, PERSONAL FINANCE AUTHOR: Absolutely. People recognize that if they haven't lost a job and if they haven't gotten a pink slip the threat of one might be imminent. Everybody knows somebody who has been laid off or had their hours reduced or perhaps their pay slashed and so that's the reason that more Americans than ever in recent times.
VELSHI: So you don't have to have lost your job. You just could be worried about losing your job.
ROMANS: At what point does confidence get better so the people have something to say but they are also spending in the economy?
KHALFANI-COX: That's the $800 billion.
ROMANS: That's when things start to look better.
KHALFANI-COX: You talked about this at the intro and you said this paradox of thrift. And essentially what that means is that what is good for you as an individual saving, knocking out some of your debt which is a form of savings also is not necessarily a good thing for the economy, but frankly, what I tell people is that it's not our job to be Hercules and to sit up here and hold up the United States economy. You really do have to be concerned first and foremost about your own individual economic situation.
VELSHI: Greg, something a lot of people don't know is you are holding up a bit of the economy by savings. That's money that companies borrow to continue, but tell me how it breaks down in terms of how to invest. If you are going to be in a CD or money market mutual fund, what are the terms that pay better interest than not? How long should you lock your money in for if you're doing it in something like a CD? MCBRIDE: Right now, first of all, everyone needs an adequate savings fund and keep at least three months' worth of expenses in a liquid account and beyond that you can look at some short-term CD like a three month CD or a six-month CD. Even then you're not going to get much better in terms of yield than what you are going to get on the current account.
The difference is with the CD you're locking in that return. So if you get a six-month CD for 3 percent you're locking in that return, it will not change on you. Where as an account like a savings account it can change at any point in time and lately that trend has been down.
ROMANS: Greg, let me ask you the same question I asked Lynnette because I'm really curious about this. At what point do we feel comfortable about the personal savings we have and about the outlook I guess where we feel like we can take advantage of low mortgage rates or low car loan rates or whatever it is.
VELSHI: Or to buy appliances.
ROMANS: When do we start to feel better and then maybe that starts to help the economy? Is that an unknowable?
MCBRIDE: It's an unknowable as to when it happens. The landscape will look like this. It will -- you know, we'll see job losses stabilize. We won't see these continued 600,000 job losses month after month. You'll see some moderation in that area. All of a sudden, the turning point really comes when the people, the 90 percent or so people that are still working start to think, you know what? Maybe I'll be OK.
MCBRIDE: And then they start to loosen up.
VELSHI: We don't know when that is.
ROMANS: It's the confidence thing again.
KHALFANI-COX: Let me just weigh in there, your previous guest was talking about his fear, in that the recovery would be too aggressive. This is what happened in the past. We felt wealthy when there was a booming stock market. We felt wealthy when our home prices were rising 10, 15, and 20 percent a year. So I think there is a little bit of a danger when we all sort of feel like it is OK to spend, we run out and do a little too much. Hopefully we'll all remember this period and do get back to basics and encourage ourselves to save.
VELSHI: When times aren't that tough and there will come that time, we need to pull Greg and Lynnette and come back and say now don't go run out and spend all of it or get into too much debt at the same time.
ROMANS: Lynnette Khalfani-Cox thank you so much. Greg McBride thanks, both of you, great discussion.
VELSHI: Well if you think about changing careers this might be the time to do it. We've got a how-to guide to make that change a successful one.
FREDRICKA WHITFIELD, CNN ANCHOR: I'm Fredricka Whitfield in Atlanta.
This breaking story we continue to follow out of Toledo, Ohio. We're getting reports of hundreds of people stuck on an ice floe on Lake Erie. We are told they are ice fishermen. The U.S. Coast Guard has sent rescue helicopters to the scene. No reports of any one hurt at this point. We're talking live to the U.S. Coast Guard coming up at the top of the hour at 2:00 Eastern. You don't want to miss that. Stay with us.
Also coming up, live coverage of the senate debate as lawmakers move closer to passing the president's stimulus plan. And bailout backlash over CEO bonuses.
First, more of YOUR MONEY.
VELSHI: Welcome back to this special emergency edition of YOUR MONEY. What could the proposed stimulus plan mean for the direction of your career? Let's have a look.
First, here are some of the sectors that lost the most jobs last month, once again without looking I can tell you the top of the list is manufacturing losing more than 200,000 jobs and that's been for more than for two or three years. Construction losing more than 100,000 jobs, we aren't building any more houses, even temporary workers, agency work losing 76,000 jobs and retail continues to shed work because nobody's buying anything.
With the unemployment right now at 7.6 percent, the pressure is on President Obama to create jobs. And they say the Obama administration says its stimulus program will do just that and here's how it breaks down. The following sectors, health care and education. We've seen that growing for the last couple of years. The Obama administration says you will still see more jobs in that area but that probably would have happened with or with out a stimulus plan.
Same thing for government, we've seen more hiring in government over the last couple of years, they're already growing areas and they have been for some time, but here's where it gets different. The administration says if a stimulus package which creates jobs, an infrastructure is created you are going to see jobs in construction. We haven't seen jobs in construction ever since this housing collapse.
What about manufacturing? Unbelievable. It has been the biggest area of job losses in the last couple of years and the Obama administration says you will see manufacturing jobs under the stimulus program and maybe for that alternative energy infrastructure that we were talking about earlier, someone's got to build those wind mills and those solar panels.
Retail, they say they'll create more than 600,000 jobs. That means people will have confidence under the stimulus plan and they're going to go back and spend some money. It creates demand and maybe when you buy things you hadn't been buying and there's more money you might want to take a vacation.
The Obama administration says that under its stimulus plan there will be jobs created in the tourism, and hospitality and hotel industry. This is what they say they're going to do if the stimulus package is passed, but there is criticism out there as to whether or not they'll be able to get it done -- Christine.
ROMANS: Ali, a lot of work to be done. No doubt about it. Check this out. People change their jobs up to 10 times in their lives according to the Bureau of Labor Statistics. While you may like your current job, you may be happy you have that job you may also want to stay flexible in this climate and give yourself some options.
Our next guest knows a thing or two about switching jobs and reinventing careers. She's done it successfully many times herself. Maggie Mistal, a certified life purpose and career coach and hosts a weekly nationally syndicated radio show called "Making a Living with Maggie."
MAGGIE MISTAL, CAREER CONSULTANT: We all need to make a living right now.
ROMANS: Well, let's talk about if you just lost your job. Or actually if you have your job but you're worried that the writing might be on the wall. You need to dig deep and figure out what it is you like to do because it might be a good entry for you to switch gores.
MISTAL: What I've seen in my own career and the career of many of my clients as painful as this is I'm not underestimating the changes that we're undergoing, there's real opportunity in this change as well. A lot of folks that I talk to on a regular basis say, Maggie if only I could do something else. In the time to really be thinking about what would you love to do? How do you want to make a difference with your skills and abilities because there are still opportunities it will just take that passion for you to find them.
ROMANS: It is interesting too, because sometimes when you're working with the day job that you have you're not able on do the side work or what it is that you really like because you are spending so much time on the day job. I mean, I hate to say it; it might be a blessing in disguise for some people in the appropriate position who have savings that can turn around and try something new. You know people who have done this. You've coached people who have been able to turn lemons into lemonade.
MISTAL: Absolutely. What I tell people is if you get a severance package or if you're able to collect unemployment; those are bridges to your next career. Don't try to force the door back into where you were, especially if it's not something that you love to do. The ones that used to say 70 to 80 percent of people are unhappy with the job this they had had.
Good news, that job isn't there for you anymore and you might not get another one in that industry. Why not go after the new areas where jobs are being created, but make sure you look beyond just the paycheck. Don't follow where the hot jobs are; go after where you're passion lies and what you love to do.
For me, I went to the Arthur Anderson Enron debacle and that's what forced me into a career change and I actually got coaching and loved it so much and found out I've been coaching my whole life informally and that's how coaching became my career. For my clients it is the same thing, they usually say Maggie, I had a hedge fund manager who I was working with for months and said I want to focus my Internet business and grow that, but I don't have the time. Now he has the time and he's been let go and he was the first one to call me and he said Maggie good news, I've been laid off.
ROMANS: How is he doing?
MISTAL: He's doing great. He's growing his own Internet business, but now he wants to teach other people how to do it because the Internet is one of those places where you can without a lot of capital which is the problem right now, build a new business and put your creative talent to work.
ROMANS: Focus on your strength, tap your career resources. Walk us through some of the things you need to do. You've been laid off and want to move ahead. What do you do?
MISTAL: Well focusing on your passions first and focusing on your strengths is second. They have talents and ability that other people don't have. Look back to your past performance reviews or go out to mentors and past colleagues and friends and family and say what do I do better than other people to get some clues and then once you have a good sense for what you're passionate about and where your strengths are start to investigate career opportunities in these areas.
And if you're passionate about healthcare and taking care of people, you can talk to people in jobs that you might like to do, whether you're a physician's assistant or a nurse practitioner, these are all areas that you can think about and talk to people in those jobs and find out how do I make that happen for myself.
ROMANS: Try out being a free agent. What do you mean by that?
MISTAL: I think that's one of the biggest opportunities in this economy and I know health care is one of things we have to pick. More people would be free agents if they had the freedom. You could be a free agent even if your full-time job went away. You can actually pitch projects back to your own employer. The work still has to get done. If you want to stay employed and you are talented in what you've done, chances are you can find projects in that area and bonuses, you get flexibility and you'll get paid more per hour than you did previously.
ROMANS: Bottom line, it's the end of a job and not the ending of a career or future.
MISTAL: It's a new way of working and going forward and I'm excited about it.
ROMANS: It's hard, but it is good advice. Maggie Mistal, career consultant thank you so much.
MISTAL: Thanks, Christine.
VELSHI: Christine, a little tip, though, there are a number of people who wanted to make a career change into being a cabinet secretary in the Obama administration, but had some problems on their taxes. So coming up we'll help you avoid tax traps and keep yourself out of trouble whether or not you're planning a career change into the administration.
Plus, why some people on Wall Street and Main Street are turning to psychics for financial advice.
ROMANS: Finding the right person for the right job isn't very easy. Just ask President Obama who saw three of his cabinet nominees tangled up with trouble with the tax man.
VELSHI: Well it seems like getting in a mess with the IRS isn't that difficult. Sandra Endo has a look.
SANDRA ENDO, CNN NATIONAL CORRESPONDENT (voice over): Controversy surrounding an Obama administration nominee forces this candid emission by the president.
OBAMA: I think I screwed up, and I take responsibility for it and we'll make sure we fix it so it doesn't happen again.
ENDO: In a stunning turn of events, Tom Daschle, Mr. Obama's nominee for Health and Human Services secretary took his name out of the consideration after criticism over tax problem. Daschle failed to report using a driver and car loaned to him by a present business associate, he also failed to list some lobbying income due to what he said was a paperwork error. Daschle paid the back taxes and interest and apologized, but backlash from critics continued.
BAY BUCHANAN, PRESIDENT: He blind sided his president. He knew that he had this problem. He let them nominate them and he did not tell the president anything about this and continued to move ahead.
ENDO: Another Obama pick, Nancy Killefer also withdrew her name Tuesday due to a tax problem. She was nominated for Chief Performance Officer and would have been charged with scrubbing waste from the federal budget. The cases raise questions about the president's commitment to his call for change in Washington. The president answered his critics. OBAMA: I don't want to send a message to the American people that there are two sets of standards. One for powerful people and one for ordinary folks who are working every day and paying their taxes.
ENDO: Besides Daschle and Killefer treasury secretary Timothy Geithner also faced tax problems, but was confirmed and Mr. Obama's first pick for Commerce Secretary, Governor Bill Richardson also withdrew his name last month due to a investigation into an alleged improper business dealings in New Mexico.
In Washington, I'm Sandra Endo.
VELSHI: Hopefully, you don't have tax problems like that, but when it comes to the IRS, you don't want to find yourself in a sticky situation.
ROMANS: And there are some things you need to know to avoid problems in the future. Don Williamson who is a professor at American University and a certified public accountant. Welcome to the program. I think a lot of Americans who sit down pay either a fortune for a tax preparer or pull their hair out with Turbo Tax another one of the programs in March and April every year, they kind of scratch their heads when they see tax trouble at the very highest levels of government. How common is it?
PROF. DONALD WILLIAMSON, AMERICAN UNIVERSITY: Well, I won't say it's common, but it's not unusual. You do see folks that well- intentioned prepare their returns themselves or even have professionals prepare them for them and there are mistakes made. In these cases with nominees the issue was perhaps were the mistakes reckless or negligent or maybe intentional.
VELSHI: What do you think from looking at these three situations, do you think with Tom Daschle with Timothy Geithner and Nancy Killefer. Do you think they were intentional? Do you think they were reckless?
WILLIAMSON: If I'm asked to put in order the degree of difficulty in which the errors occurred, actually I put Mr. Geithner at the top of the list.
ROMANS: And he's the one who got the job.
WILLIAMSON: As ironic as that is, there's no question about that, but Mr. Daschle's mistakes, again, were unfortunate and quite serious, no question about it. Mrs. Killefer's mistakes were unfortunate as well, but more common in so far as we do see error with household help all of the time.
ROMANS: That's important to remember for a lot of people who are -- at what level when you have household help do you need to be filing Social Security and Medicare taxes as an employer?
WILLIAMSON: Oh technically it's quite modest. $400 of wages or income from doing household work, the employer of that person has the responsibility to report this for the IRS and pay the unemployment taxes and it was in the district of Colombia.
VELSHI: All right. Let's talk about the things you need to do to avoid tax trouble in your own household. You mentioned record keeping is the biggest issue here.
WILLIAMSON: Absolutely. Those folks of us who are pack rats as we say in the trade are probably the best taxpayers there are because these people who keep the receipts, keep the bank records and keep the checks and when we come to do tax time it's unfortunate that there is a shoebox full of material that will come handy when preparing a return.
VELSHI: Are you an early preparer?
ROMANS: I am actually, only because as soon as I get things I start making a pile and I call the accountant right away, but you make a good point that your accountant or tax preparer can't just guess what your gross income is. You have to do some of the prep work even if you get someone to prepare your returns.
WILLAMSON: Absolutely. In the case of Mr. Daschle, that driver and car was particularly unfortunate when people receive compensation or consideration for services in kind. That's very difficult to identify and then to evaluate.
ROMANS: It's interesting because talking about the Tim Geithner issue as well, this is someone who has been in the public eye for so long and he's a variety of public positions, but yet he is a public servant. He was doing his own taxes.
VELSHI: What do you think of that?
ROMANS: And then when he got a preparer, the preparer made the same mistakes he had made and then it kept being repeated.
VELSHI: If you have a slightly more than normal complexity job or position is it OK to do your own taxes?
WILLIAMSON: It's someone who has done tax returns for almost 25 years I actually commend anyone who wants to take on their own tax return. I felt it was a good way for someone to sit down and evaluate the success or disappointment of the year upon in terms of measuring their income and seeing the deductions and seeing what their taxable income is.
I actually encourage, in terms of my own practice, folks to do that. At in point like Mr. Geithner's when you get some very technical issues regarding the payment of Social Security taxes, it's not only appropriate but probably necessary to seek out a professional. As you pointed out in Mr. Geithner's case, he actually did in those latter years and the error was only compounded and that was really bad.
ROMANS: All right. Donald Williamson, American University, also a certified public accountant. Thank you so much for joining us. We appreciate your time.
WILLIAMSON: A pleasure being here.
VELSHI: The cost of airfare has gone way down. Spring break is around the corner. We'll tell you the best time to lock in those plane reservations.
ROMANS: A little bird told me this is the best year in 10 years to go to spring break. You go on spring break, you slather yourself with baby oil and you lay on the beach.
ROMANS: Adoring fans.
VELSHI: I lather myself.
ROMANS: Go with anchors gone wild.
VELSHI: I have actually booked all of my travel for 2009.
ROMANS: Have you?
VELSHI: I have never seen prices as cheap as they are which is a different scenario than all of 2008 when we were talking to you and we were talking with Rick Seaney from Farecompare.com about how this week's inquires has affected us.
Rick, good to see you. Good to see you here.
RICK SEANEY, CEO, FARECOMPARE.COM: It's great to be here.
VELSHI: And the fact that travel costs have gone down is why Rick can actually be here.
SEANEY: Normally, we have to talk about the crazy airfare increase.
ROMANS: I have been tracking a specific flight to Mexico. And do you know, I've been watching it drop every week.
SEANEY: And I think you will see that really for the entire year. It's anything to be a tough year for airlines because they have no clue. They sell their tickets based on historical knowledge and there is no history for this.
ROMANS: They're selling a ticket for some time out in September maybe and we have no idea what the economy is going to be like, in September with the plane situation will be like.
SEANEY: They'll lock in some of those seats.
VELSHI: Here is an example. I have a wedding to go to in Jamaica in November. ROMANS: Oh, I feel so bad for you.
VELSHI: The prices are pretty good right now. But do I lock in or is this like the stock market? Do I think it might go lower? What do I do?
SEANEY: Well, you know, basically it's always good to start early. If you start early you always get a good deal. But if the price is out of your budget, it's not bad to wait these days because airlines will have a few empty seats. They're willing to discount a little bit at the end. It's not bad to necessarily procrastinate. But I'd prefer people actually go ahead and lock in if they see a good price within their budget.
VELSHI: Largely because that's a better budgeting practice in life.
SEANEY: We are seeing, you know the Holy Grail airfare for the last 10 years has been $99 coast to coast. We haven't seen that in five years. We've seen $99 coast to coast. Tickets from San Francisco to Boston, $200 ...
ROMANS: Can you fly a plane for $99 coast to coast?
SEANEY: Honestly, with a certain number of passengers they can. If it's only like 20 percent of the plane they can do that if other business travelers are paying more.
ROMANS: I travel like a -- I'm frankly a circus when I go, two kids, a pack and play. Sometimes they let me take the baby stuff for free. But do I pay $15 a bag or even more if I have more than four bags?
SEANEY: In fact, what you should be doing is getting on that airline, become a frequent flier and a VIP in their club. Those fees are waived. If you do that a lot it actually behooves you to get into those clubs. Otherwise, you pay basically $15 to $40 each way. There are some airlines who waive the fee if you use a particular credit card for example. So, there are several ways you can get around it.
VELSHI: It is worth doing some research. The other thing I found, there were some problems going on with my loyalty miles and I accumulated a lot of them. So I used them and I booked trips for the summer. If you've got a bunch of miles, what should you be thinking?
SEANEY: The bottom line is these programs are loosing value; they lost value over the last couple of years. So you should use the miles. The best time is at the last minute. I actually used my miles to come here. The ticket for me to come to New York from Dallas was $1,000 round trip. For $50 bucks at the last minute I used my miles and I just tell my wife hey you know what we can buy three round trip tickets to Disney World for the same price. That is the best time to use your miles.
ROMANS: It used to be that if you had to pay more than $400 bucks for a ticket you should try to use your miles. Is there a breakdown?
SEANEY: There is a break down; it is around $400 to $500. It is a couple cents a mile. You can use that formula. The problem is as the airlines are cutting back all these seats it's harder to get that seat. Places like Hawaii, Orlando and Las Vegas, where everybody wants to go, hard to get into.
ROMANS: So it's going to be -- so the economy, it's rough. We're going to be real frank here. But if you have enough money to go to spring break, this is the year to do it.
VELSHI: My concern for long-term planning is will the airlines all be in the same shape. We saw some consolidations last year ...
SEANEY: Financially, they're in really good shape. The price of oil coming down into the low 40s and high 30s is so much a big effect on their bottom line than having like 10 percent of their revenue down, which is the worst-case scenario. This is like data from after 9/11. So the bottom line is the price of oil is keeping them pretty propped up so the airlines are in pretty good shape.
VELSHI: This is a double view from the top because Rick is the CEO of Farecompare and we're talking about airfare from the top.
ROMANS: I like it.
VELSHI: Rick, what a pleasure to see you here. Thank you for being with us.
SEANEY: Thank you very much.
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: This is a reading for Christine. This is Roxanna asking affirm that I am a channel of light. We affirm we are protected in light.
(END VIDEO CLIP)
ROMANS: Could a little clairvoyance help clear up your finances? My interview with a psychic and why she says the tough economy is good for business.
ROMANS: Look, one thing covering this crises I can tell you no one can predict the future. No one has been able to really see what's around the corner here for the past year.
VELSHI: No one?
ROMANS: You don't need a crystal ball to see that times are tough, so tough; in fact, some people are taking an unconventional approach to improve their fortunes. They're seeing a psychic. BRUCE LEVY: What I expected was something like Ouija boards or someone looking at my palm and seeing my lifeline.
ROMANS: What Bruce Levy found when he became seeing psychic Roxanne Usleman.
ROXANNE USLEMAN, PSYCHIC: I really see that the economies are going to merge.
ROMANS: Was something completely different.
LEVY: She's able to make me see things that I wouldn't other wise see. And I just think she has this intuition that gets through to my subconscious in a way that I can't.
USLEMAN: You can have it work out the way that you want it to.
ROMANS: Usleman says what's bad for the economy is good for her business.
USLEMAN: Now, it's more talk to people I've never seen before. Men in the business world, high-powered jobs, stock market, Wall Street.
LEVY: It's a little bit delicate, but ...
ROMANS: And the questions have changed, too.
USLEMAN: Should I merge with this company? Should I bring in a partner to my company?
ROMANS: But can psychics really see what economists can't?
RYAN MACK: Absolutely not. Absolutely not. Regardless of what the stars say, regardless of what the map says and different things of that sort, in terms of if Pluto is lined up with Mars and things of that nature, you have the ability within yourself to save, to plan, to be diligent.
ROMANS: But in tough economic times, that's easier said than done, according to Professor Gita Johar who has studied consumer behavior.
GITA JOHAR, PROFESSOR OF BUSINESS, COLUMBIA UNIVERSITY: The biggest reason people are going to see a psychic is probably that they want to feel in control. And when they see their financials aren't looking so good and they really can't turn to their financial adviser, they haven't been getting, you know, really good advice, so they have to turn to someone else.
ROMANS: So are psychics the comfort food of this financial famine? One Web site we checked, says they're doing well even though some psychics charge up to $20 per minute.
LEVY: I've just reconciled myself to not being able to understand why it works but empirical evidence, my own experience tells me it does work. So ...
ROMANS: And Roxanne Usleman doesn't use tarot cards. She holds on to like a pair of keys or a photograph of you or someone you love.
VELSHI: And that feels the energy?
ROMANS: No, doesn't feel the energy. She talks to the angels. No tarot cards but angels. We got a personal reading from her about the economy. Figured, everybody else has been wrong. Ask the psychic. She says the housing crisis is going to continue. She said we could get into a depression but she says that's going to be good for this country because it will make people stronger and get back to basics.
VELSHI: So she's a free market conservative psychic?
VELSHI: Excellent. You take that to heart along with all the other advice that we dispensed for you today. Make sure you join us every week for YOUR MONEY, Saturdays at 1:00 p.m. Eastern and Sundays at 3:00 right here on CNN.
ROMANS: The economy is issue number one. We here at CNN are committed to covering it for you with our crystal bald man. Stay with CNN everyday for the latest ...
VELSHI: I see great prosperity in your future.
ROMANS: You can login 24/7 at CNNMONEY.com.