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CNN Money Summit

Aired March 7, 2009 - 20:00   ET


ANDERSON COOPER, CNN ANCHOR: And welcome to our third CNN Money Summit.

A lot has happened since last we met. And a lot of it is very bad. The stock market has been falling fast, with no bottom in sight, the Dow hitting 12-year lows this week, the economy still losing jobs.

Federal stimulus projects are getting under way, however, and the administration has detailed its homeowner rescue plan. They have unveiled a massive budget. They have pumped billions more dollars into AIG and other basket case banks. They have taken up health care reform.

So, we have a lot to cover tonight, but we begin with the president.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Just this morning, we learned that we lost another 651,000 jobs throughout the country in the month of February alone which brings the total number of jobs lost in this recession to an astounding 4.4 million -- 4.4 million jobs.


COOPER: President Obama kicking off the summit tonight.

Taking it from here, CNN chief business correspondent Ali Velshi and his money team.


Those numbers are staggering, so I want to go over them one more time, because that sets the stage for what we are doing today. In February -- the numbers just came out today -- 651,000 Americans lost their jobs. That's taken the unemployment rate in the United States to 8.1 percent. That's 12.5 people remained unemployed.

Take a look at this. The job losses started in January, just a few of them. But when you add them up all the way through the course of the year, now February 2009, we're up to 4.4 million people unemployed. And that's our bottom line for this summit, who it affects, how, what you can do about it, and what the Obama administration is doing to help.

A distinguished panel will be with us throughout the hour. They will be helping bring you a new way of measuring how all of this actually feels.

It's a little like the windchill factor, only for the economy, your economy, the Real Feel.

But, first, let's get a quick rundown of where things stand right now.


VELSHI (voice-over): The TV show "Survivor" picks a new location every year. Considering the state of the economy, maybe next season should be "Survivor: United States."

OBAMA: I want every American to know this. We will rebuild. We will recover. And the United States of America will emerge stronger than before.


VELSHI: But, to get stronger, Americans need to work together, and some Americans just need to work. More than 12.5 million people are now unemployed, the unemployment rate, 8.1 percent.

Jobs are tough to find, despite trillions of taxpayer dollars going towards saving this economy, through the bank bailout, the stimulus plan, the mortgage plan, and the not-yet-detailed bank and credit program.

Even the most optimistic projections show more jobs lost and higher unemployment, at least for this year.

BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: If actions taken by the administration, the Congress and federal government are successful in restoring some measure of financial stability, and only if that is the case, in my view, there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery.

VELSHI: Any recovery has to start with job creation. But the recent trend isn't pretty. America is slowly shutting down production lines. And, month after month, factory workers are the single largest group put out of work.

Still, the administration beats its drum of confidence and job creation.

OBAMA: I'm absolutely confident that credit is going to be flowing again, that businesses are going to start seeing opportunities for investment. They're going to start hiring again. People are going to be put back to work.

VELSHI: Americans can only get back to work when consumers start spending money. People are buying less, saving their money, in case the economy worsens. That may help American households shore up their finances and pay down debt, but it's hurting businesses.

TIMOTHY GEITHNER, U.S. TREASURY SECRETARY: We're trying to, again, reduce the risk that the economy shrinks by more than it needs to, that unemployment rises by more than it needs to, that more businesses fail than need to do.

VELSHI: One business still getting hammered, housing. Housing prices continue to fall with too many homes for sale and too few buyers. One in nine mortgage-holders were behind in their payments at the end of 2008.

Finding a fix has been tough, but the new administration is trying. There's already a tax credit for first-time buyers, a program to help slightly troubled homeowners refinance into lower fixed rates, and a program to help those in more serious trouble stay in their homes by lowering their monthly payments.


VELSHI: OK. That's the big picture. Let's break it down a bit and crunch our way to a bottom-line index of what today's money climate actually feels like to you.

This is our Real Feel economic index. We have worked on this with a panel of economists to try and find out why the economy feels the way it does to you.

Now, what we have done is, we have gone back to the 1980, an entire generation, and compared a number of measures, the best they have been and the worst they have been in that time period. Let's start with jobs, because that's the topic today.

The best jobs were in the last 30 years would make it a 10 on our scale, but, right now, it's only a 3.9 on our scale. So, the -- the comparison between the best and the worst it's been in the last 30 years, this is where we are.

Income, personal income, and we're comparing men, jobs that men have had, because, over the last 30 years, a lot of women have entered the work force, so it skews the numbers a bit. Men have been pretty steady in the work force. The best that men have earned in the last 30 years would have made this a 10 on our scale. It's a 3.2.

Let's take a look at personal savings. Back in 1982, we were in a recession, but people were banking about 13 percent of their income, so they could withstand a recession. That would have been a 10 on our scale. But, right now, we're banking very little of the money that we make, a 3.3 on our scale.

Industrial production, that's the measure of everything we make in this country. We're not making very much. If we were making more than we were last year, in the best of years, that would have been a 10. Take a look at that. It's a zero. I can't even put it on the chart.

And home price appreciation, the increase in price of your home from one year to the next, again, the best we have had in the late 2000s would have made that a 10. As you know, we have seen the biggest drops in home prices on record. So, once again, on a scale of zero to 10, home prices are off the scale.

So, we have only got three measures that are actually on the scale. And all three of them are well below the halfway point. That's why it feels so tough.

But we're talking about jobs today, so let's have a look at the job situation. Again, the -- the zero on our scale would have been the worst unemployment has been in the last 30 years. And that would have been in 1982, when unemployment was 10.8 percent.

The high point on our scale, the best that unemployment has been, or the lowest it's been, would have been 3.8 percent in 2000. Right now, as you know, as of today, unemployment rate in this country is 8.1 percent. So, we're edging up toward -- we're edging down toward the bottom of the scale.

And that's the problem that we have go right now. We need to deal with getting Americans back to work.

And that's where we bring our panel back into the situation to try and give you some answers as to where we are.

We're going to start with Andy Serwer, managing editor of "Fortune."

Andy, this seems to be a growing and more dire situation by the month.


You have to see that these numbers are getting worse. That's the real scary part, Ali, when you had the charge up earlier, that we're seeing acceleration in terms of job losses, which is really disheartening right now.

VELSHI: All right.

Steven Leeb, is this picture correct? We're drawing a picture that makes people feel like things are really bad. Are we close to the bottom of this situation, or is it going to get worse for 2009?

STEVEN LEEB, ECONOMIST: You know, Ali, if we get financial stability, this could end very, very quickly.

But the way politicians are fighting among each other right now, we don't see it. The markets don't see it. That's the whole issue, getting the banks back on track, making it possible for these banks to lend. And I cannot emphasize enough how fast this could change if that happens.

VELSHI: Christine, you have spoken to other economists who say it could be 2010 before we even start to see a response, a positive response, in the market, which, by the way, is the leading indicator. That's the one that's going to start to improve first.

CHRISTINE ROMANS, CNN CORRESPONDENT: Right. Look, level-headed, smart people who are tied into the administration and who are watching the economy are alarmed. They are -- they are very alarmed.

And you will notice that Ben Bernanke, in his comment, he said, if all of the prescriptions that we are putting through are adopted and work, then we will have -- there's a big if on the front -- a big if on the front of that. And I know that they're probably pushing all of their measures, but there's a lot of work that has to be done, Ali. There honestly is a lot of work.

VELSHI: All right, let's have a look at the job losses every month this year that we have seen since the beginning of this recession.

Now, this recession goes back to December of 2007. But we're going to measure where -- how it's affecting people. Right now, we're at an 8.1 percent unemployment rate. We told you about that. Males in America share that rate, 8.1 percent. Females in America actually have a lower unemployment rate.

And that might have something to do with the fact that they haven't been occupying the types of jobs that we have seen shed in such great numbers, like construction and manufacturing jobs. But there's growth in -- in education and health care jobs. So, you're seeing a lower unemployment rate amongst females.

Whites in America have a lower-than-average unemployment rate, 7.3 percent. But look at the number for blacks in America, 13.4 percent. And, by the way, that's not a new thing. Blacks in America have, for a very long time, had a substantially higher unemployment rate than the average, and Hispanics having an unemployment rate of 10.9 percent.

That's when we break it down by that sort of demographic.

Let's take a look at it by industry, the types of industries getting hurt. And it's no surprise -- and this has been for many, many months in a row -- manufacturing jobs the biggest losers.

In February, out of that 651,000 jobs lost, 168,000 in manufacturing. 104,000 in construction. Those are the trends we have seen. The only gains we have seen are in health care, education and government jobs.

And back to this Real Feel economic indicator, again, unemployment at 3.9 percent isn't as bad as it's been for all of these years.

Ryan Mack, what are people who watch this supposed to do?

RYAN MACK, PRESIDENT, OPTIMUM CAPITAL MANAGEMENT: Well, the first thing they have do is understand that, well, we have to take responsibility, understanding that, you know what, this is something that we have been burdened with. It's not a pretty situation. It's not something that we would ask for, but take responsibility, understanding, what can we do right now? Secondly, we have to start looking for opportunity. You know, in China, the word for crisis has two symbols. One is dangerous and the other one is opportunity. So, if we can start...


WALTER UPDEGRAVE, SENIOR EDITOR, "MONEY": I think that's good, but right now, I think people have make some basic preparations in case they join the ranks of these unemployed.

VELSHI: Which, again, is more likely than it was a year ago.


And, for example, I mean, at the very least, people should have some sort of emergency savings, ideally, three to six months worth of living expenses. And if you're close to retirement, if you're in your 50s or 60s, there's a very good chance that you could be forced into early retirement. And that can be very problematic.

So, you should be looking, going to one of these online calculators. How much do you have saved? Is it nearly enough?


UPDEGRAVE: What would you do for health care? A lot of companies aren't offering early retiree health care. So, you better want to go out there and look around. Can I buy a policy that would get me through until I would qualify for Medicare?

VELSHI: Again, and those calculators are available on



We need a survival plan, but we also do need to prepare if you have a job. And education is critical. I know it's something that Ryan has talked about before. But ,when you're looking at the unemployment rate, and how it's spread out across different demographics, people with a college -- with a four-year college education, the unemployment rate is 4.1 percent.

That's a lot lower. That's up 40 percent, but education and retraining is real critical to holding on to a job and having a job long term, which is what you need.

VELSHI: Sonia Alleyne, we have got a -- I'm sorry. Go ahead.


SONIA ALLEYNE, "BLACK ENTERPRISE": I was just going to say, that's very important. The difference with this recession and the last two is that the last two really affected white-collar professionals. And, so, white- collar professionals, with their experience and with their network, can redirect themselves and put themselves back in the marketplace.

What's alarming with this recession is that it's so widespread, that we're finding people without college degrees, people who are -- quote, unquote -- "unskilled" are out of a job. And, so, it's going to be very critical, as Donna was saying, for them to get retrained and to be prepared to get back in the marketplace.


JOHN AUTHORS, INVESTMENT EDITOR, "THE FINANCIAL TIMES": Well, I think the other problem we have with this recession compared to previous recessions is that baby boomers are much older.


AUTHORS: Many of them are over 60. They would really like to retire soon, please.

And if their 401(k) has just halved, that's going to be very difficult. And when you feed through to what that would mean for asset prices for the economy generally, it's going to be a very big break on any recovery...


VELSHI: So, those two are not disconnected..


VELSHI: ... that the jobs lost situation, the stock market loss situation, the two of them coming together is a real problem.

A number of you have referred to previous recessions. I want to just take you over the wall and show you unemployment rates. We have taken the average of the last year of the last several recessions. Obviously, go back to the Great Depression.

In 1933, the unemployment rate was 24.9 percent. Now, to be fair, we have changed the way we measure these things over years. So, they're not always apples-to-apples comparisons. But take a look: 5.5 percent, 6.8 percent, 6.7 percent. Back in 1980, that was the average of the year, even though, for one month, it got higher than that -- 9.7 percent was the average unemployment rate, then 6.8 percent, two recessions we went through with very low unemployment, and now we're creeping back up to 8.1 percent.

Andy Serwer, there's nobody -- there's nobody who thinks that unemployment is not going to go higher, as a percentage, and that many, many jobs, more jobs are going to be lost in this recession.

SERWER: Yes. I was just going to say that. I mean, you have to believe it's going to go over to 10 percent, possibly. I really think it's going to do that. And, I mean, you can see that becomes really, really historical. And you wonder about, you know, the psyche, the effect on confidence.

We talk about that a lot. But when you talk about the American dream and what John was saying about baby boomers wanting to retire, I mean, this really impacts us psychologically. We know that the American dream is still alive, but seeing over across the divide is very difficult right now. How are we going to get there? What is over there?

LEEB: I mean, crisis can mean opportunity, too.

And you just pointed out that the jobs lost are largely manufacturing and construction. But there are some bright spots, health care, education, and green.

VELSHI: OK. That's a good point to stop on right now, because we're going to talk a little bit more about those green jobs, what the stimulus plan is doing to create those green jobs, and how you can take advantage of getting one of them.

We're also going to be spending, tonight, some time on your bottom line. How do you invest, when all you want to do is hide under the bed?

Coming up next, if you're working, should you save or spend money to help this economy?

We're back in a minute.

ERICA HILL, CNN CORRESPONDENT: I'm Erica Hill with your 360 news and business bulletin.

Big change coming: President Obama set to reverse Bush-era limits on federal money for embryonic stem cell research. He is expected to sign that executive order on Monday.

Signs of a Bernie Madoff plea deal. The Associated Press reporting he has now taken steps which point to a guilty plea. At a hearing the AP says will happen next Thursday, reports are the judge has invited clients of the alleged financial scammer to speak out at the hearing.

Rapper Coolio is out on bail tonight, busted this morning at the airport in Los Angeles. He was booked on felony drug possession charges.

And a little something lost in translation -- Secretary of State Clinton in Geneva here presenting her Russian counterpart, Sergei Lavrov, with a gift. It was supposed to be a reset button to symbolize President Obama's desire to reboot the relationships between the countries.

There's a little catch here, though. The button, does it actually read "reset" in Russian? Nyet. It reads "overcharged." Oops.

Mr. Lavrov, though, has promised to keep it on his desk anyhow. A little laugh might go a long way.

Those are your headlines at this hour.

Our 360 CNN Money Summit is back right after this.


VELSHI: OK, we're looking at a remarkable sign of the changing times.

Search terms that people plug into Google and other search engines, people looking for information on unemployment benefits, searches were up 247 percent in December of '08 compared to December '07. The keyword "unemployment" usage rising 206 percent, "coupons" up 161 percent.

And so it goes. Let's add a few new words to our own search engine, namely, save or spend. We have been told that Americans save too little and the government spends too much. Yet, the problem now is that the broader economy spends too little.

So, what is the right balance to strike?

Let's ask our panel.

Let's turn to Walter Updegrave of "Money" magazine.

Walter, what is the right thing to do as individuals? People who are watching this tonight, should we be spending more to shore up this economy or saving more, in case this recession lasts longer than we expect?

UPDEGRAVE: Well, I think you have to take your own situation and that of your family into account. If you have been building up debt or you don't have a financial cushion, you should be saving more money. You can't worry about what is good for the entire economy. You have to look at what is good for you and your family and act accordingly.

VELSHI: Donna, I see you nodding your head.

ROSATO: Yes. I mean, not to take -- the unemployment rate is very high, of course, and it's unprecedented.

But, when you flip it around, the majority of people still do have a job. And Walter is right. If you have got a cash cushion, you should -- and you don't have a lot of debt, then you can start thinking about spending money.

When I think -- I think a good way to think about this is sort of some of the things we saw in the stimulus bill, the -- let's think about smart ways you can spend now that's going to save you money in the long run. Investing in things that will make your home energy- efficient, for example, that was in the stimulus bill, things like that.

So, let's encourage people to spend money in smart ways. And that will help everybody in the long run.

MACK: I agree with Walter.

Look at your own individual situations. Put six to nine months of living expenses in a savings account. And then, from that point on, move forward and start thinking about what you need to purchase for luxury items.

VELSHI: Let's look at personal savings rates over the last 30 years, going back to 1980.

As I mentioned, around 1982, in -- despite the fact we were in a recession, people were taking home more than 12 percent of the money that they earned, with a little bit of a cushion, in case that recession lasted longer.

Look at our savings rate. It has just gone lower and lower and lower as we have started to carry more debt and become a much more credit-oriented society. We bottomed out a couple of years ago very close to zero. Now we're saving a little bit more.

Stephen Leeb, I want to ask you about this. What is it -- what's going to take it -- what is it going to take to turn this around? What is it going to take for people to say, I have got enough money; I'm still going to have a job; there are deals to be had out there on houses; there are deals to be had in the stock market?

What happens?

LEEB: Basically, security.

I mean, basically, when people feel comfortable that their neighbor isn't going to be fired, that they're not in jeopardy, they will start spending again.

But one message of this chart, Ali, is that there's no moral imperative to save -- or spend, rather -- to spend -- because, look, we came out of the recession in the '80 with savings rates at 12 percent. The job of the government right now is to pick up the slack. They should be the ones that are spending. They are spending...


ROMANS: You look at that chart, though, too, and one of the reasons that people had told me it was OK to have such a low savings rate is because we were saving our money in our 401(k).


ROMANS: Our investments were kind of our savings, and so that, instead of putting the money in the mattress and getting nothing, we were actually investing, except now our investments are down.

Just since the beginning of this year, the average 401(k) has lost $6,600.


AUTHORS: The number of times you hear Americans say that house prices cannot go down, the number of intelligent people who said that and believed it, including, if I recall, Ben Bernanke saying that they had never gone down on a national basis, people's ATM was their -- was their house. That's how you got that ridiculous...


AUTHORS: ... savings rate.

ROMANS: But our policy-makers encouraged people to think that way.

You know, we look at that number, we can't believe we didn't save enough, but we were told to go for -- you know, to use credit to bill our wealth, to buy homes. And, in the end, all of that seemed to be a mirage.


UPDEGRAVE: Oh, I wouldn't pin it on the government or our policy.


ROMANS: Well, we took the money.

UPDEGRAVE: I mean, we -- individuals chose to spend the money. And they enjoyed doing it. And now they're paying the price.


VELSHI: That's a good point, Walter. Let's take a look at how individuals chose to spend their money in the month of February.

These are the retail sales. These are America's retailers reporting their sales for the month of February, compared to the month of February one year earlier in the same stores that have been open. It's called same-store sales -- sales. And it get released every month.

Take a look at this, and some of these high-end stores, Neiman Marcus down 24 percent, Nordstrom down 15 percent, Abercrombie & Fitch -- boy, that store always looks busy to me -- 30 percent lower, Saks down 26 percent, and Macy's down 8.5 percent.

Guess what? There was somebody who actually was up in this -- in February. Somebody was doing well. It was Wal-Mart. People were trading down.

SERWER: Yes. And McDonald's is doing well.

VELSHI: McDonald's doing well. SERWER: And food and comfort food and things like that.

So, people are really understanding the value proposition like they never have before.

ALLEYNE: And private labels are also doing well. So, people are moving away from the name brands. And, again, like Donna was saying, it's about value. It's not really about the name brand or status. It's about what's...


MACK: You know what? All I have to say, I really don't mind that retail sales numbers are down, because I don't want another GDP growth to be strong if it's not sustainable and if it's not real.


VELSHI: You would rather have a slow-growing economy...

MACK: If it's real.

VELSHI: ... that we can hold on to?

MACK: A real level of GDP growth.


UNIDENTIFIED MALE: ... sugar high.

MACK: Exactly. I don't want to have this false sense of prosperity...

ROMANS: That's exactly right.

MACK: ... that's not going to last.

VELSHI: Well...

MACK: That's 2004, 2007, this jobless recovery. Nothing happened.


AUTHORS: ... savings, as opposed to a big pile of debt, and let's start spending it.

If we don't actually have that money to spend, it's perhaps quite a good idea not to get back into the same trouble we are only now extricating ourselves from.

UPDEGRAVE: That was the problem. People were spending money they thought they had, the equity in their house...

VELSHI: Yes. UPDEGRAVE: ... the money that they thought they had in their 401(k). So, as it turns out, a lot of that was just a big bubble. And, so, they were spending money that they really hadn't put away.


SERWER: And we all have to get our houses in order. I mean, that's what this is all about, is deleveraging, reducing the amount of debt, companies, government, and individuals, especially individuals.

ROMANS: It's going to be painful, though, right?

LEEB: It is, but, you know, I come back -- I think Donna made a really, really good point, and I think it's really worth emphasizing.

We so much make the distinction between spending and savings. It really should be spending, investing, and savings.

AUTHORS: People have been spending what they don't have. There's nothing -- there's no easy, painless way to deal with this. We can work out the way that's least painful, obviously, but there has to be some general agreement that life has to be different.

UPDEGRAVE: You have to actually live below your means, below what -- that's the only way to create savings.

ROMANS: It's like being on a diet. Easy to say...

UPDEGRAVE: You can't just, like, get more value for your dollar and spend it. That doesn't create savings.

VELSHI: You don't lose weight -- you don't lose weight unless you take in fewer calories than...


ROMANS: Right. It's easy to say. But then how come all these people are suddenly always trying to do -- are trying to do diets all the time?

It's the same thing, trying to live within your means. It's hard when people are giving you cheap money and encouraging you to spend it.


VELSHI: All right, well...

ROSATO: And you will have a lot less stress if you have -- if you can build up your cash cushion and you can save more. If you spend less than you make, then you're going to feel a lot better about things, and it will restore confidence...

(CROSSTALK) VELSHI: Regardless of that, if you don't spend less than you make, then you will have no money to invest. And, ultimately, if you want to retire at all -- I mean, this recession will end, as they all do, but what is it that you're going to do to retire?

I know it's too painful to even look at your 401(k) right now.

Coming up next: Does this country even make anything anymore? How are you going to invest in the future of this country? What's happening to the high-paying manufacturing jobs?

What these numbers mean for our country's future -- that's coming up next on the Money Summit.



OBAMA: We are committed to the goal of a re-tooled, re-imagined auto industry that can compete and win. Millions of jobs depend on it; scores of communities depend on it. And I believe the nation that invented the automobile cannot walk away from it.



COOPER: All right, that one gets a little tricky, President Obama talking about the auto meltdown.

Take a look at auto sales over the last 12 months from the major U.S. automakers, all of them. GM saw a bit of a bump in the middle of summer, but look at when that credit crisis hit. Everybody stopped buying cars, a little of a blip in December, but, in the end, General Motors down 53 percent compared to a year ago, Ford down 48 percent, and Chrysler down 44 percent.

Now, here's the thing. If you are a business in this country, there's some math that you have to consider when you think about putting another person on the payroll. And this is complicated.

This is from the Bureau of Labor Statistics. Look at a job that pays $28.87. That's not what the worker takes home before taxes, but that's what you pay as an employer. Let's show you how it breaks down.

The worker takes home $20.13 an hour. The benefits that you pay as an employer add another $8.74. And let me just show you how that breaks down. Of that $8 and change you're paying, or of the entire bill of $28.87, $2.42 goes toward insurance; $2.27 goes towards things like Social Security, Medicare, unemployment and worker's compensation; $2.03 is the money that you pay for vacation, paid leave and vacation-type of benefits; $1.28 goes toward retirement savings; and 75 cents toward overtime costs.

So you are paying somebody -- they're taking $20.13 home and paying taxes on that, but you're actually paying $28.87 for that worker.

This is where American competitiveness comes into question, because in a lot of other countries that can manufacture the same things that American factories can manufacture, they may not be paying all of those benefits. They may not even be paying the same hourly wage.

And Christine, this becomes a major issue for manufacturing in this country. And this is in large part why our manufacturing industries have not been able to survive. We can make things in other countries for less money.

ROMANS: And that's why people who support the workers say that look, it's not a level playing field. It's cheaper someplace else, because they don't have the benefits and they don't have a lot of these other environmental restrictions and guarantees, as well. So that's part of the big political debate.

The bottom line is these manufacturing jobs have been going for a very long time. And replacing them are lower skilled, lower wage jobs that don't pay as much and in many case can't support a family. So that's -- that's a political issue there.

VELSHI: Great inventions come from America. A great reduction has not come out of America for quite a while.

SERWER: We're making stuff here. First of all, Toyota and Honda make cars here and they will be long after this recession is over, the great recession.

Also Dell makes computers here. Intel makes chips here. In fact, Intel just announced a $7 billion investment in their chip plants in New Mexico, Oregon and Arizona. There's thousands and thousands of people who work there. So I.T. is a backbone. It's going to be here to stay.

VELSHI: Is that actually going to replace what we're losing in manufacturing?

LEEB: No, I don't think so, Ali. I think we do have an opportunity here, though. When you look at these horrible car sales and the government basically controlling these car companies, why don't they use this money to try and get these auto companies to retool so they can produce energy-efficient cars, whether they be battery driven -- I mean, that would be great.

VELSHI: If that was really marketable, maybe we would have done this 15 years ago or 10 years ago.

UNIDENTIFIED MALE: When gas is $4 a gallon, it goes back up to that, all of a sudden...

LEEB: Right. I mean, that's preparing for our future. And I think that, you know, maybe subsidize those cars. I mean, that's a way of getting people to spend on things that make a lot more sense. ROSATO: I think agree that it would be great to provide more energy-efficient green jobs, but the green jobs won't -- there won't be demands while housing is in the tank. A lot of the jobs that we want to transition -- a lot of jobs that are green jobs are manufacturing and construction. And they're not coming back right now.

VELSHI: Let me show you something that might help rebuild our industrial base. I want to show you minimum wage statistics over the last 30 years. You know, we look back at the last 30 years a lot, because back in the '80s, we changed a lot of ways in which we measure things so we can get consistent measures.

I want to show you first what minimum wage has done. It was down around $3 an hour back in 1980. And you can see a steady increase over time until $7.25, which is where we're at right now.

Now, we have adjusted these numbers for inflation to compare what that $3 was in 1980 compared to what it was today. We were close to $8 an hour adjusted for inflation back in 1980, and as you can see, there's been no real gain in hourly earnings for minimum wage earners in this country until now. So obviously it's $7.25 today because it's today's numbers.

I want to convert this conversation, move it over to the fears of inflation, something you're very familiar with. Steven, you've written a lot about this.

Does this give us an opportunity? It's bad news if you're earning minimum wage, but our -- our minimum wage workers are very inexpensive in this country.

LEEB: They are very inexpensive in this country, but I don't think it's going to stay that way. I mean, I think that you will eventually see inflation spill in the next cycle over to wages. I mean, we've been lucky. If you say anything has been lucky about this economy and, certainly, it hasn't been lucky for the people that have been working. But we haven't had the typical wage price cycle that we've had in the past. What drove inflation in 2008 was just resources.

SERWER: Oil...

LEEB: Exactly. Copper, everything was going up.

SERWER: Lucky for whom, as you say, though?


SERWER: To make more money, I mean -- you want to see that go up, don't you?

LEEB: You totally want that to go up.

And that's exactly why you're in such trouble and why consumers were spending so much. Because they wanted to, you know, live a little bit better.

VELSHI: Arthur, you look like you're jumping out of your seat.

UPDEGRAVE: The minimum wage has nothing to do with the economy. This is a rate that is set by people in Washington. It has nothing to do with productivity. You want to see it go up because you want to see people get more skills, more education, become more productive and see their minimums rise. But the mere fact that Congress sets a minimum wage over here doesn't help anybody.

VELSHI: I'm telling you, you've got a great value for yourself right now while there's no pressure for your wage to go up at all.

Well, a lot of money is being spent to prop up homeowners, to pump up buyers and bail out banks. But is this working? There are states that are hardest hit by foreclosures over the last year. We showed you these.

Florida is one of the worst hit by foreclosures, California, Nevada and Arizona. These are all states that have really, really suffered in terms of foreclosures. But there's a glimmer of hope. And we're going to tell you what that is when the "CNN Money Summit" continues.



UNIDENTIFIED MALE: For those of you at home, the (UNINTELLIGIBLE) itself. And when you went to work and when you saw people getting laid off, you were like, "No, I'm sure it was just like -- you know, it will work out fine. I'm not going to lose my job. No, I'm fine. I'm absolutely fine. So what that they can't afford the water cooler any more. That's fine. I mean, they're just trying to be environmentally friendly."

They weren't? They couldn't afford the water in the water cooler? They couldn't afford the water -- I'm going to lose my job.


VELSHI: And iReporter David Kronmiller (ph) in Burbank, California, using humor to soften the blow, but many homeowners in that state and across the country are dealing with that very issue. You lose your job, and you can't pay your mortgage. And since the housing bubble burst, you can't sell your home either.

And that dilemma is one of the reasons that foreclosures are so high in this country.

Let me give you a picture of what's going on. We've definitely seen an increase in the number of foreclosures around the country. But let's zero in on a few places in the country that are the hardest hit.

Let's start with the foreclosure rates across the country. Now, since January 2008 to January 2009, foreclosures are up 18 percent around the country. But from December of 2008 to January of 2009, one month, they're down 10 percent.

Now, let me explain to you. Let's pick some of the hardest hit places in the country and give you a sense of that we're talking about. Let's look at Florida.

From January 2008 to January 2009, foreclosures in Florida, one of the hardest-hit places in the country, are up 35 percent. But from December 2008 to January 2009, one month, they're actually down 20 percent.

Let's take it to another part of the country hard hit with foreclosures, Arizona. Again, that one year period, January to January 2009, they're up 61 percent in Arizona. But in the one-month period from December to January, down 8 percent.

Probably the hardest-hit part of the country altogether is Nevada. Las Vegas and its area were some of the -- we saw some of the prices go the highest in those areas and then collapse.

Foreclosures are up 137 percent from January '08 to January '09. But from December '08 to January '09, they're down 4 percent. Same trend, three states.

Let's take the fourth highest state. In California, the foreclosure rate for the one-month period, up 34 percent December to January, down 14 percent.

So the bottom line is foreclosures are a serious problem and continue to be a serious problem in this country. But there might be a glimmer of hope. One month is not enough to build a trend out of it.

Walter, I'm going to start with you. Do we think we're coming to the end of this housing crisis, and basically, this government's new plan to deal with mortgages going to help out of this situation a little bit?

UPDEGRAVE: Well, I think it's too early to tell. I mean, housing crises don't usually turn on a dime. And I think that some of the administration's new moves might help. But I still think we're in this for a long haul.

SERWER: One reason why, Walter's saying, is that the -- banks, some of them have said that they actually stopped their foreclosure proceedings because they're trying to sort out the president's new plan. So that may have something to do with it.

VELSHI: That should be filtering through to banks this week. So do you think this is going to change our situation?

ALLEYNE: I think instead of waiting for the government to provide access to you that you may not be able to qualify for, the homeowners themselves are going to have to to be a little creative and figure out. VELSHI: This is a good point, because time is running out for people to waiting for a solution that's not coming their way. And even if a solution gets announced by government, it could be weeks or months before it trickles down to you. This is a point, Ryan, that you constantly, constantly make.

RYAN MACK, OPTIMUM CAPITAL MANAGEMENT: Well, I think this is a fabulous learning opportunity for those who are actually preparing to purchase a home. If you're renting a piece of property properly for, let's say a thousand dollars a month and to own that same piece of property costs $1,500, it's time to take an addition $500, act as if you own that home so basically playing house.

VELSHI: Let me show you a picture of how affordability has changed. I showed you California, in terms of foreclosures, because California was a place where prices had run up. They were the highest prices for a median home in the country.

Let's look back at 2006, which is the peak of the market in July in California. The media home in California, look at these numbers, $567,000. The interest rate back then for a 30-year fixed mortgage was 6.47 percent. So your monthly cost for a home in California back then, assuming you put that 80 percent down, you had good credit, was $2,862 to buy that home.

That same home today, the media home, in California is going for $254,350. Less than half the price that it was at the peak of the market. The interest rate in February, where these numbers are from, is substantially lower than it was back in 2006, 4.5 percent. That's assuming you had a normal mortgage, a 30-year fixed mortgage, not these fancy trickery mortgages. Your monthly payment now is $1,031 on that same house with 80 percent down.

So there's a market out there if you have good credit and you're looking for a house, Steven.

LEEB: Absolutely is, Ali. If you look at mortgage affordability, July 2006 was at an all-time low. Today, it's at an all-time high. I don't mean by a little bit. I mean now for $1,000 a month, you can buy what was formerly a nearly $600,000.

That's the whole secret, Christine. Is that there is no financing.

VELSHI: So you're talking about the program that we thought we were getting a few weeks ago when the treasury secretary didn't turn out to be all that detailed and we're going to get some detail about it. But this is the plan that recapitalizes banks, that gets banks to lend to people, that gets money flowing a little more.

LEEB: Ali, if the world could change literally, like the world changed with Lehman Brothers for the worse, overnight, from inflation to deflation.

UPDEGRAVE: It would be nice if that happens. One thing to remember is even though we're talking about a much lower price, $254,000, today a lender is going to want, actually, 20 percent down. So that's like over $50,000, a lot of people, particularly given the job market, you know, may not have it.

LEEB: Wait a second. If the government manages to recapitalize these banks, you can rest assured they're going to say lend and require very little down or 10 percent.

UPDEGRAVE: And go back to the day of the $500,000 house?

LEEB: Well, not maybe that quite that bad.

ROMANS: I don't think the administration has done a good job of selling why it's so important to get the financial system stable. I think there's this real backlash against bailouts. Everyone hates bailouts.

VELSHI: You had a great example.

ROMANS: An economist told me this great example. She said you don't explain about spending taxpayer money to clean up the toxic waste dump in your town. This is what this is.

VELSHI: The bottom line is, there are three legs to this thing. You do have to have a job. The value of your home, you need to figure out and hope it goes up. And ultimately, you've got to be able to put some money away and save for retirement.

So coming up next, "Money Matters." What to do with your money in today's grim market. Here's a suggestion from iReporter David in New York.


UNIDENTIFIED MALE: Find a piggy bank, shake it up, take some cash out, count your money. Let's see here. Oh, wow. Look at that. I have enough money to buy a share of Citigroup. Do you see that? Look at that. Just hand that over to your broker and you can buy your own share of America's preeminent financial services company.

The only thing to ask yourself is should you buy a share of Citigroup or should you go and get something off the dollar menu at McDonald's?



BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I'm not talking about the day to day gyrations of the stock market. I'm talking about the long-term ability for the United States and the entire global economy to regain its footing. And, you know, the stock market is sort of like a tracking poll in politics. It bobs up and down day to day. And if you spend all your time worrying part of that, then you're probably going to get the long-term strategy wrong.

(END VIDEO CLIP) VELSHI: Every time that clip plays, Christine Romans, there's steam coming out of her ears. The president, Christine, is talking about long-term having a strategy for investment, something I think we would all agree with. You're not loving the analogy about a tracking poll.

ROMANS: It's not a tracking poll. This is so much more important than some political tracking poll. People's lives depend on what happens with that stock market. It is money.

And the fact that it's at 65 or 6,600 means that there are people who have to work longer, people who can't retire, people who have to save more for their college education for their children, people who are going to have to put some of their dreams on hold because of that tracking poll.

VELSHI: All right. So it's not a tracking poll, but Ryan Mack, you agree with the president, maybe he could have used a different example. Maybe we could have used a thermometer or something like that. But the bottom line is his point that we really need to have a long-term plan.

MACK: I used to be a stock trader and there's a reason why stock traders are crazy. Our job is to look at the movements every single second.

VELSHI: By the minute.

MACK: And we're looking at it and we're analyzing it, and you really are driven crazy after a certain amount of time. So when I left that, you really start to see there's a whole lot other world in there of comfortable, relaxed, long-term investment, long-term thinking. And this is how we need to start looking at our retirement plan.

VELSHI: So what do people do, then? Do they sit there and say, "All right, I should have a long-term strategy and stay invested in the market," which is pretty much everything that people are instructed to do. Or do they say run for the hills and take my money in a satchel with me?

ALLEYNE: I agree with the long-term strategy that it's bad now, but you've got to believe that it's going to get better five, ten, even 15 years from here.

VELSHI: All right. Let's listen to one of our iReporters, talking about their 401(k) and their concerns. This is Steven in San Diego.


UNIDENTIFIED MALE: I don't really invest except in my 401(k). And in that case, I don't really look at it. And I looked at it a few months ago and it just looked awful. So I decided not to look at it anymore, and I feel more at ease. And I just hope it will go back up.


VELSHI: I don't know if that's a good philosophy or bad philosophy. We can discuss that.

John Authors of the "Financial Times," if he hasn't looked at it, we can tell him a bit about what's probably happened. And the fact is, every time there's been some major initiative or major announcement from the government, just like at the end of the last administration, this market has not reacted positively to this. Steven Leeb says that's a judgment on this administration. Is it?

AUTHORS: In the case of the bank rescue, I think very plainly it is, for one very key moment. When Tim Geithner made his plan -- announced his plan to save the banks and more or less he didn't have a plan.

VELSHI: This was in early February, just to bring our viewers up to speed. This was set up to be the plan to rescue the banks. The president the night before had sort of really pumped it up and said, "I don't want to steal Tim Geithner's thunder." We were expecting a blueprint and, as one of our colleagues so appropriately said, we got a sketch on the back of a napkin.

AUTHORS: Exactly. This was a really bad piece of expectations letdown that we've seldom seen in a more dramatic instance, negative response.

VELSHI: And he laid down on the market, and we have not recovered since.

LEEB: When your financial planner says to you, I don't care how old you are, you have three classes of assets, cash, bonds and stock, you tell them there's a forth class I want to consider. It's a class that does really well whenever there's turbulence, and that's precious metals.

I think everybody should own a little precious metals. Not 100 percent, but my minimum would be 10 percent. If you own more, that's your decision.

VELSHI: You want to be buying gold now? I mean, if you look at what gold's done in the last -- in the last several years.


UNIDENTIFIED MALE: You're buying at the top.

VELSHI: You guys can argue why I show people the price of gold. This is the annual gain in the price of gold, going back to 1998; 1998 and 1999 were rough years. What's been going on since then?

Now let's look at this last year with gold to Andy's point. You want to be buying gold right now? This is the monthly gain or loss in the price of gold this year.

You can see gold has been going up in price. So some months it's come off very steeply. March was one of them, July was one of them. Look at this. When that financial crisis hit, when the worst of it hit, when nothing was going right, people were buying into gold. Look at the number in November and December with gold.

You're an expert on this, Stephen. Where does gold go? Does it go anywhere? Do you buy it so it doesn't...

LEEB: In my opinion I think it's going to multiply several times from here. I hope I'm dead wrong. I hope I'm dead wrong.

VELSHI: Because if it does...


LEEB: But let me just say -- let me just say, gold has been going up this whole decade. The '70s were a turbulent decade. You made 30 percent a year on gold. Why not have...


UPDEGRAVE: If you bought gold in 1980 you played $850 an ounce, and if you sold it today for $1,000 an ounce, you had a grand total return of 0.5 percent a year over almost 30 years.

VELSHI: Let's talk about things that you can invest in in in this market. First of all, I think most of our viewers, probably, unless they're professionals, shouldn't be in the individual equities game, in the individual stocks game. The should they be largely investing by virtual of mutual funds. Should they be investing in mutual funds today?

UPDEGRAVE: Yes, I think so. I mean, if you're investing for the long term, you should have some of your money in stock mutual funds. I mean, one of the -- and it's very, very small glimmer of hope here, but over the last year, there's been a movement of index funds that have picked up market share after actively managed funds.

VELSHI: Should people be in the market right now? Through mutual funds or index funds or exchange-traded funds, things like that?

AUTHORS: I think it's a dangerous bet to be out of the market altogether. If you want -- if you put a gun to my head to try to predict things, if you look at the very long-term valuations, stocks are distinctly cheaper than the historical average going back over a century. Similarly, history tells us that they tend to be cheaper still at the end of a really bad instance like the one that we had before they turn up.

SERWER: All the people who got out of stocks in September, October, November, December, January, February are glad they did. Because that's money they didn't lose. So it's very hard to tell people not to sell. And it's even harder to tell people to buy.

Having said that, you know, it makes sense to, A, be in the market and, b, probably be buying in a little bit. But you've got to have that time horizon. And pay off your credit card debt first.

VELSHI: Bottom line: last word to you. How do you save efficiently? What should you be doing?

If you're close to retirement, you're going to have to stash even more money away. You may have to work longer to do that, but that's the bottom line. We're all going to have to save a lot more money.

But you can feel confident. If you put the money in, if you have cash it's going to give you a little bit of a psychological boost. It may not give you the best return, but it will give you at least the idea that you've got somebody. This conversation can go on for so much longer.

Thank you so much for your different but wise points of view on this one. Everybody needs it right now.

Thanks, as always, to our panel for their insight and solid advice and thanks to all our iReporters as well. We hope with -- you came away with more answers than questions. That's it for now. Let's turn it back over to Anderson Cooper -- Anderson.

Ali, thanks. And thanks to our viewers for making the CNN Money Summit one of the most watched programs on the network.

You can always find more at and on our block at We'll see you next time.