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Fire Breaks Out at Bangladesh Mall; Economy Shows Small Signs of Turnaround; Obama Economic Adviser Outlines How Economy Can Bounce Back
Aired March 13, 2009 - 10:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
HEIDI COLLINS, CNN ANCHOR: Here's what's happening right now. Fire breaks out at a high rise shopping mall in Bangladesh this morning killing at least one person, injuring 20 others. The fire started on the top floors of a nearly 20-story building.
And a search for survivors is going on in the Atlantic off Canada. Sixteen people are missing after a helicopter slammed into the frigid waters near Newfoundland yesterday. One survivor was found minutes after the crash, and one body also recovered.
A new day on Wall Street. Can it continue its big three-day surge? Here's a live look now at the big board just about 30 minutes after the opening bell still to the positive there by about 45 points.
Our Susan Lisovicz is here now with what more we can expect for today.
Hey, Susan.
SUSAN LISOVICZ, CNN CORRESPONDENT: Hey, Heidi. Well, indeed, it could be a lucky Friday the 13th for the Bulls. "New York Times," it's the lead story saying there's a glimmer of hope in the stock market. This of what just happens in the last three days, the Dow industrials surging more than 600 points or 9.5 percent. The last time we saw the three major averages up this long was in November.
And it came right after hitting what was then the bottom of the bear market. What's going on today that's pushing the markets higher? China and Japan are talking about new stimulus there and obviously they very important partners to us. And over here at home, Bank of America and Citigroup say they don't need government money and obviously the financial market has been a huge catalyst or culprit into market directions. We should say that analysts also say the markets were ripe for some sort of gains, but what we're seeing are modest gains across the board, 30 minutes into the session, Heidi.
COLLINS: OK. Very good. Thank you, Susan.
LISOVICZ: You're welcome.
COLLINS: The positive gains on Wall Street come amid a more positive message from the White House. President Barack Obama decidedly more upbeat in his latest comments on the economy.
(BEGIN VIDEO CLIP) PRES. BARACK OBAMA, UNITED STATES: I don't think things are ever as good as we say, they're never as bad as they say. And things two years ago were not as good as we thought because there were a lot of underlying weaknesses in the economy. And they're not as bad as we think they are now. We're going to restore confidence by in a very systematic way, getting this financial system fixed.
(END VIDEO CLIP)
COLLINS: Let's get the latest now in from White House correspondent Suzanne Malveaux. So, Suzanne, later on this hour, the president's top man on the economy is going to be speaking live. We're talking about Larry Summers, what can we expect to hear from him? I imagine more positivity, if you will.
LISOVICZ: Probably it's going to be a positive message, but also realistic message, as well. They're really trying to strike a balance here. But what we've been told is that he's going to talk about the challenges that we all face that yes, you've got a housing crisis, a credit crisis, a banking crisis, unemployment, as well, but that the economic stimulus package has got to have time to work through the system to actually employ people, that there are projects that are in place. That there's accountability and transparency.
But Heidi, you're absolutely right, what you're hearing from the president on down is really kind of this message here that you need to be confident, have confidence that we know what we're doing as an administration, that it is going to take some time. That's why you see these pictures, very public pictures, of the president meeting with those business advisors, the business community leaders yesterday. Why you had both the president and the vice president speaking to state officials, talking about the need to be transparent.
All of these public statements they believe are going to help the market. They're going to help Wall Street come around and be more confident in actually solving this crisis. Heidi.
COLLINS: Yes. And Suzanne, you mentioned something about at least what Larry Summers are going to be saying, you said, yes, it will probably be positive, but realistic. And you know, a lot of people may be wondering this new tone, if you will, that President Barack Obama is giving, it doesn't change the situation, but everybody would probably be looking for him to be as the leader of this country positive, correct, not really a surprise here.
MALVEAUX: No, it's not a surprise, but one of the things as you know is he's been criticized the last couple of weeks or so as really being - having these dire predictions, being too dower, being too negative about this and that people are not investing. Every time he makes an announcement, or Geithner makes an announcement -
COLLINS: Yes.
MALVEAUX: It tanks. They're seeing some changes here. They're see something turns here and they want it to ride this wave here. They want them to be very clear and be very unified in this message, that people need to have a bit more faith and a bit more patience to see this thing through.
COLLINS: All right. Suzanne Malveaux, thank you.
MALVEAUX: It is day 53 of the Obama administration. Here's a look now at the president's day. Last hour, he got his daily economic briefing and then at noon Eastern, the president will meet with Paul Volcker, the chairman of the economic recovery advisory board. And then at after that private meeting, the president is expected to deliver brief remarks.
Don't focus on the numbers today but to the future. Our personal finance editor Gerri Willis is going to be joining us shortly to talk about opportunity.
Another member of the Obama cabinet just sworn in, last hour, Labor Secretary Hilda Solis, taking the oath of office from vice- president Joe Biden at the Labor Department. Solis is a former democratic congresswoman from California. Unions, which contributed heavily to the Obama campaign, expect her to be an advocate for them and for workers. Solis is the daughter of Mexican and Nicaraguan immigrants.
Right now President Obama has two vacant cabinet posts. More than any of his recent predecessors at this point in a new administration. There is still to one heading the departments of Commerce and health and human services. The president has named nominees for the posts, but the Senate has not yet confirmed them.
Get ready for a wet weekend. Reynolds Wolf is in the weather center now tracking the storm that is expected to bring quite a bit of rain to some of the southern states. Also keeping our eye on states like Ohio and Michigan, too, floodwaters need to go down there.
REYNOLDS WOLF, CNN METEOROLOGIST: Absolutely. And that's going to be your top weather story of the day. We're going to talk about the conditions that we have in parts of Michigan and back into Indiana and Ohio. Let's start off with that video, get right to it and show you Michigan first. Compliments of WDIB. It has been just an awful time for people in southeastern Michigan, heavy rainfall some places, nearly half a foot of rain. You see the runoff. Although the storm system that spawned much of the showers and storms, that is long gone, but still dealing with all the water going into tributaries, those rivers. It's going to be a big mess with the water receding. But my gosh what a clean up they face.
Now let's shift gears and head down towards Indiana. Will show you what we have there. Load of transportation for many people is by boat today. It's going to be a rough time for them no question. But again as I mention, the storm system long gone and as we take a bit of a sneak peek, if you will, at your weekend forecast, what we're going to be seeing, better conditions in parts of the midwest, certainly good there.
Scattered showers for you across parts of the southeast. In parts of south Florida, heading on to the beach, good conditions for you with a mix of sunshine and clouds. It's getting dry in parts of Texas. And out to the west, things look great in the Great Basin, but when you get to the Pacific northwest namely up in Seattle, Portland, maybe California, scattered showers along the coast. But when you get in higher elevations, we're going to be talking about the possibility of some snowfall.
Speaking of the west coast, we got a tower cam for you. The golden city of California, San Francisco, compliments KGL. Look goods there. You see the bridge, you see the buildings. Just a few clouds in the sky. Plenty of sunshine expected from Alcatraz island, all the way down to Pier 39. That is a look at your forecast. We'll give you more of a state peak on the weekend trail, you can expect Sunday too, it's all moments away.
COLLINS: All right. That was a gorgeous shot. All right, Reynolds. Thank you.
A desperate search off Canada's Atlantic coast. It has been more than 24 hours since a helicopter carrying 18 people crashed into the icy waters, off Newfoundland. 16 are still missing. Rescuers plan to search all day and all night if necessary. They say the clearing skies should help. The lone survivor so far is recovering in a St. John's Hospital. The helicopter was ferrying a crew to an off shower oil platform when the pilot issued a may day call.
Bernie Madoff is spending his first full day behind bars. The disgraced financier was hauled off to jail yesterday after pleading guilty to cheating thousands of investors out of billions of dollars. He's staying in a tiny cell like this one in New York's metropolitan correction center, 7.5 by 8 feet, as small as a walk-in closet. A far cry from his $7 million Manhattan penthouse. Madoff will stay there until he will be sentenced on June 16th. Some of his former clients say incarceration really isn't enough, they want restitution.
(BEGIN VIDEO CLIP)
RONNI HARRELL, MADOFF VICTIM: What I put in, I should get that back. And what we put in for my children's account, what my mother put in, I mean, we should be able to get take money back. So him going to jail isn't really closure for me.
(END VIDEO CLIP)
COLLINS: Madoff faces up to 150 years in federal prison.
Three people have been charged in connection with providing thousands of prescription pills to Anna Nicole Smith. Among those are his former boyfriend, Howard K. Stern. He's out on bail right now. And the other two are doctors including one who prescribed all 11 types of drugs found in Smith's room the day she died.
(BEGIN VIDEO CLIP)
JERRY BROWN, CALIFORNIA ATTORNEY GENERAL: The scenario is using false names and getting prescriptions for thousands of pills without medical necessity and making them available to Anna Nicole Smith who obviously was addicted. And all that violates the law of California. (END VIDEO CLIP)
COLLINS: Prosecutors say the doctor supplied Stern who gave them to Smith. She die two years ago of an accidental overdose of prescription drugs. More information in the case is expected during a news conference which will happen later on today.
Looking past all the gloomy numbers to a brighter future. Our personal financial editor Gerri Willis brings us opportunity.
(COMMERCIAL BREAK)
COLLINS: Quickly now, I want to show you this live shot that we have at the Brookings Institution in Washington. Larry Summers is expected to speak shortly. He of course is the director of the White House national economic council. We're told he will talk about the challenges the country still faces and the prospects, as well. He could also take a few questions, so make sure you stick around right here with CNN, for that.
The more negative numbers we hear, the more we all wonder what to do. Is it the time to put our money under the mattress or actually invest it? I'm betting our personal finance editor Gerri Willis will say no don't put it under the mattress. Never a good idea.
GERRI WILLIS, CNN PERSONAL FINANCE EDITOR: Yes.
COLLINS: So really, Gerri, how do we get past the bad news?
WILLIS: Well, right, it's like every day it's something else. Just this week, the Federal Reserve said household net worth is down almost 18 percent. It's enough to make you want to turn off your TV set. But experts we're talking to say you have to look past today's bad news.
(BEGIN VIDEO CLIP)
GREG MCBRIDE, SENIOR FINANCIAL ANALYST, BANKRATE.COM: Even though we're bombarded by bad news regarding the economy and financial markets seemingly at every turn, for a long term perspective, the reality is, you know, we're going to get out of this.
Now, when and how long it takes, that's anybody's guess. But you have to position yourself for the inevitable rebound whenever that may come.
(END VIDEO CLIP)
WILLIS: So markets are cyclical, real estate is cyclical, the economy, guess what, it's cyclical. It's up and down. And two to three years from now, you will probably look back and say, hey, why did I miss that market bottom, what was I doing? There was a real opportunity there. A real estate agent friend of mine was able to help a client purchase a foreclosed condo along Miami's south beach. It once cost $700,000, Heidi. It went for $20,000. Just astonishing. So there are opportunities out there and of course mortgage rates are also at big time lows. 4.96 percent current mortgage rate average. This means a very big difference to people. The average homeowner, if you paid $170,000 for a house and you financed it at 4.96 percent versus eight percent, you're saving $347 a month. Very big difference.
COLLINS: Yes. I mean, it is. There are some real deals out there obviously. Of course I'm thinking about the person who is trying to sell the home, though, too for that initial $700,000 price. Because most people, I mean, I don't have a number here, but you know, always have something to sell before they buy unless they're a first time home buyer.
WILLIS: Or if you're buying a second property, a vacation property. Those are the markets where prices have gone down the most and that's where the biggest opportunity is right now. And don't forget there are lots of people on the sidelines who never bought because they could never afford it in the first place.
COLLINS: Sure. All right. Well, what about opportunities for people with 401(k)s? Obviously that's a very big part of the discussion right now regarding the economy.
WILLIS: Right. Well, you know, if you're investing, look, if you're waiting for that stock market to recover before you get in, you should snow this. If you look back to stock market rallies, they've occurred incredibly tight time frames. Check this out.
In 2006, the market gained 13.6 percent, but it took only 18 weeks to do that. So if you got in and out of the market, guess what, you missed it. You have to be in the market to get that gain even though it occurs in a very small time frame.
2005, the gain then occurred in just eight weeks. 2004, in just seven weeks. If you get in and out, you're likely just to miss the boat entirely. So you have to be in the market to find the gains and guess what, nobody tells when they're coming.
COLLINS: I was just going to say, the real deal would be if you knew exactly when that was going to happen.
WILLIS: If I could say, OK, Monday morning about 10:00, that would be perfect. But it doesn't happen that way.
COLLINS: What about the opportunities for your average consumer, though, somebody who is probably not going to be able to afford no matter you know that second home?
WILLIS: Well, the good news here is that the IRS has said it will become more lenient this year with struggling taxpayers. Now, how often can you say the IRS is going to be nicer this year. They're going to have greater authority to temporarily suspend collections in certain hardship cases, especially when a taxpayer has lost a job or is facing severe illness or medical bills. If you can't pay, you need to call the IRS. 800-829-1040. Get it, 1040? COLLINS: 1040. I do get it. All right. Gerri Willis, our personal finance editor. Thanks so much, Gerri.
WILLIS: My pleasure.
COLLINS: You know the old saying, if you have to ask the price, you probably can't afford it? Well, that's definitely not the case in one Ohio restaurant. The owner there has wiped the prices off the menu and told cash strapped customers to pay what they want or what they can. Details now from a reporter Katherine Bercham, our Dayton affiliate, WHIO.
(BEGIN VIDEOTAPE)
UNIDENTIFIED MALE: How much would you like pay for it?
KATHERINE BERCHAM, WHIO: They can't believe their ears.
UNIDENTIFIED MALE: What's that?
UNIDENTIFIED MALE: What would you like to pay for it?
BERCHAM: They're confused.
UNIDENTIFIED MALE: You get to choose what you think is fair to pay for a small hot chocolate.
BERCHAM: But once they get it - it's decision time.
UNIDENTIFIED MALE: Is it grilled? Or a cold sub?
BERCHAM: How much is that sandwich really worth?
SAM LIPPERT, JAVA STREET CAFE OWNER: Most people when they're confronted with that, they kind of think that it's some kind of joke.
BERCHAM: Sam Lippert, the owner of the Java Street Cafe, erased the prices on the menu.
LIPPERT: In the current economy, maybe that's what people need to feel comfortable going out again is they need to know that they're going to pay what they feel is a fair price for what they're getting.
BERCHAM: Customers get to choose that fair price, which Lippert says is different for everyone.
LIPPERT: If someone's only making minimum wage, fair price for a sandwich is a lot different than if someone's making 15 or 20 dollars an hour. And if someone's unemployed, fair price for a sandwich is different yet.
BERCHAM: Perhaps you're thinking like we did that surely someone would take advantage of this good faith offer.
UNIDENTIFIED MALE: So she underpaid a little bit, but that's all right. She overpaid by about the same amount. BERCHAM: But the man taking the money says Java Street's new policy is meeting the bottom line.
UNIDENTIFIED MALE: People used to come in and they would overpay or underpay in the form of discounts or tips. So it's not all that different.
BERCHAM: And customers tell us most importantly paying a fair price is really just a way of paying it forward.
UNIDENTIFIED MALE: It will make me come back here.
BERCHAM: In Kettering, Katherine Bercham, News Center 7.
(END VIDEOTAPE)
COLLINS: We want to help guide you through this troubled economy. And so next week, we're going to bring all of our resources together. Join us for "Road to Rescue," the CNN survival guide. Some pretty cool stuff we're going to be showing you. It's all next week beginning Monday, both here on CNN and online at cnn.com.
Blood clots in the leg. You may have symptoms of a potential killer and not even know it. We'll talk with a woman who has made it her mission to raise awareness about DVT especially after her husband died due to complications of the condition while in Iraq.
(COMMERCIAL BREAK)
COLLINS: Blood clots or deep vein thrombosis, millions of people have them and sometimes don't even know. A former NBC correspondent David Bloom put a face on DVT. He died of complications related to deep vein thrombosis six years ago while covering the war in Iraq.
And now his wife, Melanie, has been working for the past five years to raise awareness about the condition. She is with Coalition to prevent DVT. So Melanie, nice to see you. Thanks for being with us again. I know that March is DVT awareness month. So tell us, if you would, in the time that you've been trying to bring about awareness, what's changed? What's the biggest thing that you have noticed?
MELANIE BLOOM, COALITION TO PREVENT DVT: Well, what we noticed is that DVT has really gone from something people haven't ever heard of to people everywhere saying, oh, yes, you know, my brother had this, my mother passed away from this. There's always a DVT story to tell. And I think it's really getting out there and becoming more of a household name. Combine that with the fact that the surgeon general recently issued a call to action on DVT. All of this has served to really prioritize DVT as a national health crisis.
COLLINS: Well, selfishly, I totally agree that it's something that is very important, having suffered one myself. Nobody had any idea what it was when it happened to me about 11 years ago now. And I really do notice a change myself and applaud you for the work that you've done. In fact, I want to go ahead and show a little bit of one of your new public service announcements right here.
BLOOM: Oh, great.
(BEGIN VIDEO CLIP)
BLOOM: DVT is a blood clot usually found in the leg that can break loose and travel to the lungs where it can be fatal. Some risk factors include obesity, recent surgery, restrictive mobility, respiratory failure and advanced age. There's one story I know my heart. It's about an NBC correspondent, a young husband and father named David Bloom, who died of DVT-related complications while covering the Iraq war.
(END VIDEO CLIP)
COLLINS: Well, I know it gets me a little choked up when I see that absolutely. Tell me what else are you doing? I mean when you go out and about and you talk to people about this now, what are the main points that you try to get across?
BLOOM: The points we try to get across is that DVT is preventable, that yet it takes more lives in our nation each year than AIDS and breast cancer combined. 300,000 people will die each year in our country from something that can be prevented if people just snow their risk factor, know the warning signs and symptoms, and go get help, talk to your doctor.
COLLINS: Absolutely. And you know our chief medical correspondent Sanjay Gupta has been covering DVT. You may have seen his piece in the last hour but remind us again about the symptoms. I don't think we can do it too many times. Because it really remind us that it can happen to just about anybody. You don't have to have a blood disorder or be someone who is completely inactive, sedentary.
BLOOM: Absolutely, yes. My husband passed away almost six years now. He was 39 years old at the time. Some of the risk factors are being over 40, even though he was young, being overweight, like you mentioned, inactivity or restricted mobility, sitting a long time at your computer desk, sitting a long time in a car or plane ride, anything that restricts the circulation of the blood flow allow the clot to form in the leg and it can and is deadly when the clot breaks lose and hits the lungs.
COLLINS: And now we're looking right now on the screen as some of the signs, warning signs or symptoms looking at you know pain in the leg that you really can't explain, you didn't hurt yourself, but you just have the sort of cramping and the skin feels warm to the touch. These are all things that certainly should be considered something to go to your doctor about.
BLOOM: Absolutely. And sometimes it's been called a silent killer because 50 percent of the time you don't have the leg pain. So you really need to be proactive, find if you fall into the risk categories and of course if you have leg pain combined with being a high risk person, talk to your doctor right away. I can't recall, Heidi, if you felt the leg pain? COLLINS: I did. I thought I pulled a muscle, though.
BLOOM: Exactly.
COLLINS: I had done some sporting events and thought I pulled a muscle.
BLOOM: Right and David mentioned leg cramps, you know, but he was covering a war. So everybody, he had pain and he didn't think anything about it really. But only two days after mentioning leg cramps, he died. So you know I really wish we would have known then what we know now.
COLLINS: Yes, absolutely. We all remember that day very, very well, very tragic day indeed. Melanie, I do want to say something positive, though. You have got remarried.
BLOOM: Yes, yes, I'm happy to share there is a new happy chapter in my life moving forward, after six long years. Met a wonderful man, Dan McNulty, a widower himself, two children. So combined we have five kids and there's a lot of healing and happiness with this new development in our lives.
So there is hope and people can push through tragedy and come out on the other side.
COLLINS: Absolutely. And I'm sure that's what David would have wanted, as well. We sure do appreciate your time. Love the work that you're doing. Thanks so much for coming here. Melanie Bloom, thank you.
BLOOM: Thanks. It's good to see you.
COLLINS: You too.
In just a couple of minutes from now, I want to remind you that we're expecting to hear from the president's top man on the economy. What will Larry Summers say, stay with us right here. Hear for yourself.
(COMMERCIAL BREAK)
ANNOUNCER: News as it develops that only CNN can bring it to you. See for yourself in the CNN NEWSROOM.
COLLINS: At any moment we're going to be hearing from the President's top man on the economy. A rare public statement from Larry Summers. We're going to be taking those comments, you can see the live shot there from Brookings Institution in Washington. Just as soon as they begin, then we will bring that to you.
To Wall Street now, the Dow trying to make it a four for four. That would be nice, huh? Some corporate heavyweights say they are starting to see signs of turnaround. Susan Lisovicz at the New York Stock Exchange with details. I want to hear more about that definitely, Susan. LISOVICZ: Well, you know, and it comes from the financial sector, Heidi, and that is huge because we need -- the sense, the very strong unified sense is that we need the banking system to be stable in order for the economy to recover.
And that's what we've heard for the last few days. We've had little inklings that things are getting better. And what's happened as a result is that the blue chips have jumped 9.5 percent in the past three sessions. The rally, you may recall, started Tuesday with comments from Citigroup saying that it was profitable in January and February.
And now today, well, we did see a bit of a rally, and we're not seeing much of a selloff. Citi's chairman, Dick Parsons, telling Reuters that the bank probably won't need additional money from Uncle Sam. Also, Bank of America saying it probably won't need any federal money, as well. So, that has helped over the last few days.
Check it out now. Well, we're seeing not much action at all. And I suppose that's better than some of the sessions we've seen as of late, Heidi. Right now, the blue chips are flat. The Nasdaq is down a third of a percent, not much at all -- Heidi.
COLLINS: Yes, well, with the job losses mounting, though, too, it seem like we're in the thick of the recession. Is it too early for these companies to say they won't need any more government money?
LISOVICZ: Well, you know, it's kind of risky. I mean, if you're really comfortable about saying that, investors are eager to lap it up. But, Heidi, you can be punished quite severely if you promise something that you can't deliver.
And the recent example, for instance, is Tim Geithner. We talk about it all the time, the treasury secretary saying he had a plan for the banking sector, and then basically the analysis was, well, it was a plan to have a plan. And you saw the selloff that resulted. So, it's encouraging, but you have to remember, job losses are mounting.
And so, while we've seen a lot of distress in the housing sector, there are still plenty of economists and analysts say that we're going to see follow-through, not only with mortgages, but also with consumer loans. And we have seen some ramifications there. So, great news. You know, we'd like to hear more of it. And the bottom line is, we'd like to see more of it in their earnings -- Heidi.
COLLINS: Yes. Susan Lisovicz, thank you.
LISOVICZ: You're welcome.
COLLINS: Well, positive words from the White House, positive gains on Wall Street. Is President Obama moving the markets with his more upbeat message?
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We live in such a rapid-fire, information-rich environment that people's attention spans go like this. And that makes for volatility in confidence. All right?
A smidgeon of good news, and suddenly everything's doing great. A little bit of bad news, oh, we're down in the dumps. And I am obviously an object of this constantly varying assessment. I'm the object in chief of this varying assessment.
(END VIDEO CLIP)
COLLINS: It's not just President Obama's words that may be moving markets. This morning, encouraging comments from bank executives, as we just talked about with Susan Lisovicz, about their companies were credited with driving stock a little bit higher. Well, it is day 53 of the Obama administration, so here's a look at the president's day.
Just last hour, he received that daily economic briefing that he gets. And then at noon, the president meets with Paul Volcker, the chairman of the Economic Recovery Advisory Board. And after that, a private meeting. The president is expected to deliver some brief remarks.
Bare knuckles on "Brawl Street." Jon Stewart goes toe to toe with a popular financial analyst. Stewart says CNBC's Jim Cramer had played fast and loose with the facts and money of people who followed his advice.
(BEGIN VIDEO CLIP)
JON STEWART, HOST, "THE DAILY SHOW": I understand you want to make finance entertaining, but it's not a (EXPLETIVE DELETED) game. And I -- when I watch that I get -- I can't tell you how angry that makes me.
JIM CRAMER, HOST, CNBC'S "MAD MONEY": Absolutely we could do better. Absolutely. There's shenanigans, and we should call them out. Everyone should. I should do a better job at it. I'm trying. I'm trying. (INAUDIBLE), I'm trying.
(END VIDEO CLIP)
COLLINS: In the runup to the showdown, Stewart had shown video clips of Cramer urging CNBC viewers to buy Bear Stearns stock just before the company collapsed. Since the sparring began, Stewart's TV ratings have gone up. Cramer's have gone down.
At any moment now, we are going to be hearing from the president's top man on the economy. It's a rare public statement from Larry Summers. A live picture there for you of the audience that's gathered at the Brookings Institution in Washington. We will take his comments live just as soon as he begins.
We want to help guide you through this troubled economy, so next week we're doing something special. We're going to bring all of our resources together. Make sure you join us for "ROAD TO RESCUE, THE CNN SURVIVAL GUIDE." It's all next week, beginning on Monday both here on CNN and also online. You can get interactive with this at CNN.com.
Some southern states can get ready for a wet weekend. Reynolds Wolf in the weather center now, tracking the rain that's on the way. Also, other states like you're standing in front of there, Indiana, Ohio, trying to dry out in the middle of all this.
(WEATHER REPORT)
COLLINS: Meanwhile, want to get you to the Brookings Institution now, where we see Larry Summers has just taken his seat. And we have been waiting here because we understand he's going to be speaking shortly.
A pretty rare occasion to hear what he has to say. Of course, one of the president's top men on the economy. So he's the director of the White House National Economic Council. Gerri Willis is standing by to talk a little more about this.
So, Gerri, we've been saying all morning long, also from our White House correspondent, Suzanne Malveaux, that we've been hearing a bit of a more, you know, upbeat tone about things from the president, and also now I imagine today from Larry Summers about the situation with the economy.
GERRI WILLIS, CNN PERSONAL FINANCE EDITOR: Well, I think it's really going to be interesting to hear from Larry Summers. We haven't heard a lot from him. He's been kind of conspicuously absent from public commentary. Tim Geithner, of course, has been the center of conversation. In all the television speeches, et cetera, you've seen him. There's been a lot of criticism of him.
Now here comes Larry Summers. He was president of Harvard University. He's a former treasury secretary. This is a guy with some real street cred when it comes to the economy, and obviously, in his position he's advising the president day to day on economic policy matters.
I've had the opportunity to travel with him for stories, and I can tell you firsthand, this is one smart guy, very intelligent, very well-known for how adept he is with economic policy. He is occasionally not politically correct in his statements. He's known for that, as well.
But I have to tell you, what's interesting here is it seems to me that the president and his advisers are now showing Wall Street and Main Street a little more gravitas. More people at the helm on the economy. It's not just Timothy Geithner over at Treasury. It's a lot of people, people who have a lot of experience. And, of course, you know, Larry Summers was at the helm with Bob Rubin during the 1997 Asian economic crisis, which was really a scary time. But they were able to pull people together.
COLLINS: Understood.
WILLIS: And here he is.
COLLINS: Sorry to interrupt you, Gerri, but we do see him going to the microphones now, so let's go ahead and take a moment to listen in. Once again, Larry Summers, everybody.
LARRY SUMMERS, CHAIRMAN, WHITE HOUSE NATIONAL ECONOMIC COUNCIL: Thank you very much for almost all of that introduction. It's better than the economists usually get, as you well know, and is a pleasure to be back in this room, where I had spent so many hours over the years discussing macroeconomic policy in conjunction with my friend, George Perry, as part of the Brookings panel. Thanks to President Obama, my term as editor of the Brookings papers on economic activity is slightly reminiscent of President Harrison's term as president of the United States, but I hope all will agree in the end that my departure was for a somewhat better reason than his.
I want to talk this morning about our understanding of the roots of our current economic crisis, the rationale for the administration's recovery strategy, and connect that recovery strategy to the central objective of sustained and healthy expansion. Economic downturns historically are of two types. They're different not just quantitatively but qualitatively.
Most of those in post-World War II America and probably in most other countries have been a byproduct of the monetary authority's efforts to control rising inflation. But an alternative source of recession comes from the spontaneous correction of financial excess: the bursting of bubbles, deleveraging in the financial sector, declining asset values, reduced demand and reduced employment.
Unfortunately, our current situation reflects this latter, rarer kind of recession. On a global basis, $50 trillion in wealth has been erased over the last 18 months. This includes $7 trillion in U.S. stock market, $6 trillion in housing wealth. Inevitably, these losses have led to declining demand, with GDP and employment now shrinking at among the most rapid rates since the Second World War; 4.4 million jobs have already been lost since the recession began.
Our single most important priority is bringing about economic recovery and ensuring that the next economic expansion, unlike its recent predecessors, is fundamentally sound and not driven by financial excess. Without robust and sustained economic expansion, we will not achieve any other important national goal. We will not be able to project strength globally or reduce poverty locally. We will not expand access to higher education or make health care more affordable. And we will not be able to create opportunities for new small businesses to thrive or most importantly, to raise incomes for middle-class families.
And so today, I explain -- I come here to explain and discuss the rationale behind the president's recovery program and our strategy for long-term growth. Our problems were not made in a day or a month or a year, and they will not be solved quickly. But there is one ineluctable lesson in the history of financial crises: They all end.
I am confident that with the strong and sound policies the president has put forward and the passage of time, we will restore economic growth, regain financial stability and find opportunity in this moment of crisis to assure that our future prosperity rests on a sound and sustainable foundation.
How should we think about this crisis? One of the most important lessons in any introductory economics course is about the self- stabilizing properties of markets. When there's an excess supply of wheat, prices fall. Farmers grow less. People consume more. The market equilibrates.
When the economy slows, interest rates fall. When interest rates fall, more people take advantage of credit, the economy speeds up and the market equilibrates.
This is much of what Adam Smith had in mind when he talked about the "invisible hand." It is what people have in mind when they talk about the self-equilibrating forces of the market or use the metaphor of a thermostat to describe how a market functions. However, it was the central insight of Keynes' General Theory that two or three times each century -- and now is one of those times -- the self- equilibrating properties of markets break down as stabilizing mechanisms are overwhelmed by vicious cycles as the right economic metaphor becomes not a thermostat but an avalanche. And that is what we are confronting today.
Consider the vicious cycles. Declining asset prices lead to margin calls and deleveraging, which leads to selling, further declines in asset prices, perpetuating the cycle. Lower asset prices mean banks hold less capital. Less capital means less lending. Less lending means lower asset prices. And the cycle perpetuates. Falling home prices lead to foreclosures, which lead home prices to fall even further, forcing more foreclosures, forcing losses in the mortgate sector, forcing reductions in lending, forcing housing prices further down.
A weakened financial system leads to less borrowing and spending, which leads to a weakened economy, which leads to a weakened financial system. Lower incomes lead to less spending, which leads to less employment, which leads to lower incomes.
And I could go on. These are not processes that are self- correcting. To put the point a different way, an abundance of greed and an absence of fearled some to make investments not based on the real value of assets, but on the faith that there would be another who would pay more for those assets. At the same time, the government turned a blind eye to these practices and their potential consequences for the economy as a whole. Bubbles were born, and in these moments, greed begets greed, and the bubble grows.
Eventually, however, the process stops and reverses. Prices fall. People sell. Instead of an expectation of new buyers, there is an expectation of new sellers. Greed gives way to fear. And this fear begets fear.
This is the paradox at the heart of the financial crisis. If in the past few years, we've seen too much greed and too little fear; too much spending and not enough saving; too much borrowing and not enough worrying, today, our problem is very different. It is this transition from an excess of greed to an excess of fear that President Roosevelt had in mind when he famously observed that the only thing we had to fear was fear itself. It is this transition that has happened in the United States today.
What is the task of policy in such an environment? While greed is no virtue, entrepreneurship and the search for opportunity is what we need today. We need a program that breaks the vicious -- breaks and reverses the vicious cycles. We need to instill the trust that allows opportunity to overcome fear and enables families and businesses to again imagine a brighter future. And crucially, we need to create this confidence without leading it -- without its leading to unstable complacency.
While the economy is falling far short today, perhaps a trillion dollars or more short, we should never lose sight of its potential. We have the most productive workers in the world, the greatest universities and capacity for innovation, an incredible amount of resilience, entrepreneurship and flexibility, and the most diverse and creative population of any economy in the world.
One striking statistic suggests the magnitude of the opportunity that is before us in restoring our economy to its potential. Earlier this week, the Dow Jones industrial average, adjusting for inflation according to the standard Consumer Price Index, was at the same level as it was in 1966, when Charlie Schultze, Art Okun and George Perry (ph) were helping to preside over the American economy.
While there are many ways that one could question the precise details of this calculation, that the market would be at essentially the same real level as in 1966, when there were no PCs, no Internet, no flexible manufacturing, no software industry, our workforce was half as large as today and our net capital stock was a third as large as today, will be regarded as some as suggesting the presence of the sale of the century. For policymakers, it suggests the magnitude of the gains from restoring confidence and sustained economic growth.
The prospect of producing recovery and harnessing these opportunities will depend upon the choices we make now. Towards this end, the president is committed to an approach that moves aggressively on jobs, on credit, on housing, thereby attacking the vicious cycles I just described at each of their key nodes. In this effort, he has insisted that we be guided by the recognition that the risks of overreaction are dwarfed by the risks of inaction.
The first component of the president's program is direct support for jobs and income to engage the multiplier process in favor of economic expansion. Increases in income lead to financial repair, which supports further increases in income. Rising employment will lead to rising spending, which leads to further increases in income and employment.
The Recovery and Reinvestment Act is the largest peacetime economic expansion program in the country's history. It will inject nearly $800 billion into the economy, three-quarters of it within the next 18 months. The Council of Economic Advisors' estimates suggest that it will save or create 3.5 million jobs.
At the same time that it creates jobs for people who need them, it will do work that the nation has needed for a long time: doubling renewable-energy capacity in the next three years, supporting middle- class incomes, modernizing 10,000 schools and making the largest investment in the economy -- in the spine of our economy -- the nation's infrastructure -- since Dwight Eisenhower's interstate highway system 50 years ago.
Already, its impacts are being felt. It may retain 14,000 teachers in New York alone and cops, teachersand public employees across state and local governments. It will, for most American workers, in the next several weeks be felt as withholding schedules are adjusted, resulting in higher take-home pay. Already, several hundred thousand workers are benefiting from continuing unemployment insurance benefits and health benefits that would otherwise have been unavailable. And contracting is already underway for tens of billions of dollars in infrastructure projects that otherwise would not have taken place.
It is too early, surely too early to gauge the broader economic impact of the president's program. But it is modestly encouraging that since it began to take shape, consumer spending in the United States, which was collapsing during the holiday season, appears, according to a number of indicators, to have stabilized.
The second major portion of the president's strategy is the financial stability plan. It is directed at addressing the vicious cycles associated with deleveraging and credit contraction. A strong flow of credit is necessary because factories need it to buy equipment, stores to stock their shelves, students to attend college, consumers to buy cars and businesses to meet their payrolls.
The president's approach rests on two pillars that reflect the diversity and complexity of the U.S. financial system. The first is provision for a trillion dollars or more for financing or purchasing mortgages, student and small business loans and other financial instruments through the TALF program or what is now called the Consumer Business Lending Initiative, the Government-Sponsored Enterprises in the mortgage area and the public-private investment facilities that Secretary Geithner will be detailing in the weeks ahead.
Reactivating the capital markets is essential to restarting nonbank lending, which accounts for nearly 40 percent of the lending in the American economy, for establishing realistic asset valuations so that markets can function, and to enabling banks to divest toxic assets when they judge it appropriate or economic conditions make it necessary.
The second pillar of our program is assuring that our banking system is well capitalized and in a position to lend on a substantial scale. This starts with accurate assessment. The stress tests now under way will enable a realistic assessment of the position of each different institution and appropriate responses in each case to assure their ability to meet their commitments and to lend on a substantial scale.
As the president said in his joint address to Congress, "When we learn that a major bank has serious problems, we will hold accountable those responsible, force the necessary adjustments, provide the support to clean up their balance sheets and assure the continuity of a strong, viable institution that can serve our people and our economy."
As a result of government interventions in financial markets, key credit spreads are already substantially narrower than they were last fall, even in the face of a stock market that has declined as well. There are some indications that the expectations of future actions have been a positive in reducing credit costs in a number of key areas.
It is our hope and expectation that further support for capital markets, transparency with respect to the condition of banks, and infusion of capital into the banking system will create virtuous circles in which stronger markets beget stronger financial institutions, which beget stronger markets, leading ultimately to financial and economic recovery.
These two measures together address most of the vicious cycles that I spoke about. But the third component of the president's recovery strategy is addressing the housing market. The vicious cycle of foreclosures leading to declining home prices, leading to rising foreclosures, leading to declining home prices and problems in the mortgage market must be contained, as it is at the heart of our economic crisis.
Through direct intervention, using the GSEs to bring down mortgage rates and make possible refinancings for credit-worthy borrowers who have lost their home equity as house prices decline, and through setting standards and providing significant financial subsidies for measures directed at payment relief to prevent foreclosures, we are achieving several objectives.
Housing wealth and its contribution to expenditures is being maintained. And critically, lower mortgage rates mean more income for consumers, and function like tax cuts in support of consumer spending. Depending on market conditions, the administration's program may save American households more than $150 billion over the next five years.
Taken together, these steps to support incomes, increase the flow of credit and normalize housing market conditions address each of the vicious cycles that is leading to decline. With the passage of time, they will permit the normal processes of economic growth to re-engage: rising incomes and employment, greater credit flows, increased spending, a stronger U.S. economy and a stronger global economy.
They will reinforce crucial cyclical dynamics that people often lose sight of at moments like this one. For example, about 14 million new car sales a year are necessary on average for replacement and to accommodate rising population growth. Yet car sales are now running at an annual rate of about 9 million. New household formation requires something like 1.7 million new housing starts a year -- new housing units a year, and yet housing starts are now running at about 400,000 a year.
Once the inventory is worked off, investment will increase. Historical experience suggests that rapid inventory decline such as we have observed in recent months is followed by increased production to rebuild inventories.
