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YOUR MONEY

Signs the Economy is Coming Out of Crisis; Housing Market: What Does It Mean for the Recovery?; Goldman Sachs Charged With Fraud; What You Should Do With Your Tax Refund

Aired April 17, 2010 - 13:00   ET

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


ALI VELSHI, CNN HOST: Welcome to YOUR MONEY. I am Ali Velshi. Christine Romans off this week.

There are some clear signs that this economy has come out of a crises but we aren't out of the woods just yet. Let me tell you what has happened. This week, a Federal Reserve report found conditions improving in 11 of the central banks 12 districts across the country. Retail sales, people going out and spending surged 1.6 percent in March, that's the fourth month in a row that retail sales are up, that is a sign of improving consumer confidence.

The White House claims that the Recovery Act, the stimulus bill, has created or saved at least 2.2 million jobs through the first three months of this year. From when it started until the end of the first three months of this year. But the Federal Reserve chairman Ben Bernanke has stressed that it will take a long time to recoup those job losses.

Unemployment remains at 9.7 percent; it was 4.9 percent when the recession started. So the question is, does this recovery have legs? We will pose that question to Wall Street journal columnist, John Fund, and Stephen Leeb the author of "Game Over," and Joanne Lipman the founding editor of "Conde Nast Portfolio." Folks thanks very much for being with us.

I'm going to put my bias out there right now. I am a confident guy, and I think the economy is going to recover. I think that's where we are headed. But I am also a journalists, as a couple of you are, and we have to turn that stone over and we have to say there are mixed messages out there, so where are we headed. What can we tell our viewers about where we are in the recovery right now? John, let me start with you.

JOHN FUND, COLUMNIST, "THE WALL STREET JOURNAL:" Look there are some positive signs. This recession is two years old. It eventually does have to end. But most of your viewers are concerned about jobs, either jobs they have lost or jobs they are worried about losing. This recession costs us 8.4 million jobs. Now just to keep up with population growth we would of have to add 2.7 million more jobs to last two years.

So we are 11 million jobs in the hole. Last month we had job growth, 162,000 jobs. But 40,000 of those were census jobs. We need -- those are temporary. We need 150,000 new jobs every month just to keep up with population growth. So even though retail sales are up, we are still losing jobs because we have to create more to account for a higher population growth.

VELSHI: Stephen, what do you think?

STEPHEN LEEB, AUTHOR, "GAME OVER:" Ali, I think I agree with you that the economy has legs but I think they are very, very small legs. They may be sturdy and they may keep the economy growing at a relatively slow pace for sometime to come I hope, but there are a couple things about this recovery and about the recession that are different than what we have seen before.

One it was caused by balance sheets. Balance sheets exploded. In the wake of that, we are not going to see very, very aggressive bank lending. That just will not happen. The second thing and I know I sound like a broken record on this; we are looking at rising commodity prices. Index I follow which is the raw industrial index of the CRB, no speculation in this and this is just a measure of what companies are paying among themselves for things like scrap steel and scrape iron, up 50 percent year over year. That's the fastest we have seen this index rise in at least 30 or 35 years.

VELSHI: That's because there is demand in China and they are still building in India and they are building in Brazil.

LEEB: Exactly Ali and that building unfortunately is a tax to some extent on American people. Who would dream unemployment near 10 percent and you are paying near $3 a gallon for regular gasoline, I mean and you know that's a major tax and it is a major hurdle.

VELSHI: All right. Joanne lets put this all together. I think John is absolutely right. Most of my viewers are concerned primarily with jobs in the employment situation, and Steve is right we have commodity price increase, and we have oil at $85 a barrel and we still have credit issues. What is your view on where we are right now? More positive, more negative, legs short legs, what do you think this economy is about?

JOANNE LIPMAN, FOUNDING EDITOR, CONDE NAST PORTFOLIO: I think the legs are short and wobbling, honestly. I'm in the skeptical dances. We have in addition to all the factors that we just talked about, you still got major, major real estate issues. And I'm not just talking about housing; no housing is a huge issue. There is something like 6 million homeowners now who are behind in their mortgage. And there is 15 million homeowners who owe more to the bank than their houses are worth.

VELSHI: Yes.

LIPMAN: And the foreclosure programs that the administration has put in place so far have really, they all flopped. It looks like the most recent one doesn't look like it will be anymore successful because the banks are revolting against it. And on top of that Ali, you have commercial real estate issues. I think this is the big, big question for this year. We have been hearing for two years that commercial real estate is in a bubble, and it's going to burst and there will be huge repercussions. It has not happened yet. The reason it has not happened yet is because the borrowers have been able to renegotiate and hold on to their properties, they have not had to sell them.

VELSHI: Well the borrowers in the commercial sectors have been smarter than banks were with homeowners. And because they have seen it coming they tried to dull the pain a bit.

LIPMAN: They are holding on to their property so you are not seeing it in the open market. This is not a sustainable position. Unless real estate prices rise, you have huge issues with your malls and your hotels and all of your commercial property, and your office buildings, and there is no sign of those prices coming up right now.

VELSHI: OK. So what I have from the three of you is we are in a recovery, but, dot, dot, dot, what you all are people who know a lot about business and the economy. And we know that there are opportunities in here, we know the Dow is up 68 percent since it bottomed out in March of 2009, and we know that interest rates are still remarkably low and even though they are likely to go up for home price and for mortgages they are still pretty cheap.

Let's just talk now about opportunities for my viewers. What exactly can you do to get the positive side of this equation into your bank account or into your real estate or into your job? Let's start with you, John.

FUND: Well I will be honest with you. The stock market is going up in part because look your viewers are not going to put their cash under a mattress, it has to go somewhere. The stock market is paying a lot better than CDs and bank deposits. I think that frankly one of the best places is municipal bonds, even though states like California and New York have shaky bond ratings. I am sure they are ultimately going to get paid off and those are paying 6, 7 percent tax free.

LIPMAN: I think that is a much riskier strategy then it has been in the past. So I mean if you look at, I mean look at our states and towns and how many of them are in deep fiscal crises. I mean you have 41 states that have budget debt right now.

FUND: States can't go bankrupt.

LIPMAN: Yes, they can't, but you have states and municipalities that are in deep, deep trouble. You are going to have to raise taxes or cut services even further.

VELSHI: Hey Stephen, I have 15 seconds left. You tell me what you think our viewers should do.

LEEB: Ali, I think you have to overweight commodities, probably overweight gold, I'm not saying 100 percent in gold but you have to have at least 10 or 15 percent. I mean there is just a flood of dollars, a flood of Euros, and a flood of currencies from every developed country in the world. China has indicated that they are aggressive buyers of gold; there is a very aggressive bid under the market. I think it pays for every one in a world though, I think it's getting better like you do, is still extremely, extremely risky to at least put a few, if not gold, then silver under your mattress at night just so you can feel better when you go to sleep.

WHITFIELD: Stephen, John and Joanne we have spoken over the last couple years, and I would rather be in this situation where we have different views on where things are going than where we were a year ago when we all had exactly the same view of where we were in the economy. So to our viewers, I say these three folks know a lot about what they are talking about, and take the advantage to read up a little bit about what they are suggesting you do with your money to try and take advantage of what we will ultimately be recovering economy.

Thanks so much to you. John Fund, Joanne Lipman and Stephen Leeb.

Coming up next, one of the things they just touched on was the housing market. It's confusing. What does it mean to the recovery and how do you take advantage of it?

Plus, how should you be investing your money right now? We are going to go a little deeper into that when we come back.

(COMMERCIAL BREAK)

VELSHI: If you follow the housing market as closely as I do, you are finding some mixed signs. Prices for homes have stabilized, sales are going up, but foreclosure filings are on the rise. The first three months of this year 16 percent higher than the first three months of last year. So where are we headed with this? Chris Mayer is the director of The Paul Misten Student Center for Real Estate at Columbia Business School.

Chris good to see you again. Thank you for being with us.

CHRIS MAYER, DIRECTOR, THE PAUL MISTEN STUDENT CENTER FOR REAL ESTATE: Good to see you Ali.

VELSHI: All right. First of all foreclosure filings are up but this is the different from the first run of foreclosures that we had a couple years ago. Those were triggered by loans resetting, much higher interest rates and people not being able to afford their payments. This is largely because people have been hit by the recession and lost their jobs?

MAYER: Yes, I think what we are seeing now is part of it is the delay. Remember banks basically slowed down their foreclosures, believe it or not, and you have over 5 million people who are 60 days or more delinquent in their home. And even though the unemployment rate seems to have stabled there are still a lot of people who are going out of the labor market and people are coming in, and that leads to more problems. VELSHI: But we have seen if you just look at it by the numbers, we have seen home prices stabilizing and starting to go up and remarkably low interest rates continuing. They started to pick up a little bit. The Fed is doing some things that means they are not giving as much money to Fannie Mae and Freddie Mac to give to banks, but where do you see this going?

MAYER: Well, although the economy is important, I think rates and credit are just enormously -- an enormously big issue for housing. We actually watched the housing market start to pick up, prices, anyway, from the summer of last year when the Fed had really intervened and brought the rates down.

VELSHI: Right, so they put money into these agencies that by mortgages from banks and as a result rates went down for 30 year fixed mortgage it went down to 4.6 percent at some point.

MAYER: Yes, I mean we are still below 5.25. But I think we are in a range where if those rates pick up further you might say what is another half of a percent? The problem is that increase of a half percent in rates could increase the cost of owning a home by between 5 and 10 percent, and that's the equivalent of a drop in demand of that much, I don't think we are sitting in such stable shape that we could handle that kind of increase.

VELSHI: But people who follow rates very closely do say we don't know whether house prices are going up or down, we definitely know rates are probably going up. Some people say that 5.25 could become 5.75 or even 6 percent by the end of the year.

MAYER: Yes, I think there is just enormous risk at the moment of rates rising. This is something the Fed doesn't have control over directly, because rates have started to rise even though the Fed hasn't raised their discount rate at all.

VELSHI: Good news if you have a house that is under water. Ultimately people who are waiting to buy a house, who have access to credit, they might be thinking prices are going to come down a little bit and I'm going to wait for that to get into the house. But as you and I have discussed before if rates go from where they are now to 5.75 or 6 percent, the cost of owning that house over 30 years is going to increase significantly even if the price of the house drops a little bit.

MAYER: Yes. I think if you are at a point where you are looking at a home that you are going to live in for a while, this is a tremendous opportunity to buy a house. Probably not much downside on rates unless the economy really takes, but boy, there is significant risks on the up side. If you lock that in for 30 years and get an affordable payments, and the economy improves a little bit, and it's a good deal.

VELSHI: Even people that think the economy is not fully on its feet yet don't think that interest rates are going down. Chris, good to talk to you as always. Chris Mayer is the Paul Misten professor of real estate at the Columbia Business School. All right. April 15th has come and gone. So did you actually get the tax return done? Now what? We are going to show you what you should do with your money. With efile you are getting your money very quickly, if you didn't your getting a refund a little later. We are going to tell you exactly what you should do with that money when we come back.

(COMMERCIAL BREAK)

VELSHI: I thought after tax day we would not be talking about tax returns anymore. But they are done hopefully. Maybe you filed for an extension, maybe you are getting a big tax refund and you are excited about it.

Doug Flynn is joining me now, and he said that if you are excited about getting a tax refund you are doing something very, very wrong. He is here and we are also joined by the Ryan Mack, he is president of Optimum Capital Management. These two guys are going to tell you what you do if you have a refund coming to you.

Doug, you feel that if you are getting a refund or you owe more than $1,000, you are doing something wrong. You are not withholding the right amount from your paycheck.

DOUG FLYNN, CERTIFIED FINANCIAL PLANNER: Yes, a lot of people don't realize, that the w 4 form that you signed when you first took your job, it doesn't have to be the one you keep on file for the rest of your working career. You can actually change that from time to time. And so as your life situations change, you get married or you get divorced or you have children, your tax withholding is going to adjust.

So what you want to do is you don't really want to give the government a whole bunch of money to hold for you throughout the year and then get it back in a big refund, unless you are not disciplined enough to save throughout the year.

VELSHI: All right. Ryan, let's talk about IRAs. What role should they be playing in peoples' lives right now?

RYAN MACK, PRESIDENT OPTIMUM CAPITAL MANAGEMENT: Well, the IRA again, there is a lot of ways to maximize and accumulate wealth, and you can reduce your living expenses and reduce your debt, and a powerful way to reduce your taxes and the IRA is essentially allowing yourself to get a tax-deferred savings plan, and a tax deduction if you have a traditional IRA. In order to make sure you maximize the amount of wealth, you can accumulate wealth in a responsible way.

For those individuals who might not be billionaires, they still have things that they can use to make sure they can minimize their taxable base and maximize their wealth. So the IRA is a great way and a great tool to use in addition to your 401(k), these are great ways in order to get some good tax deductions and save money in a good tax- deferred strategy.

VELSHI: You know when you invest in mutual funds Doug, on some levels you want your agnostic to what the market is doing, and you want a good fund that follows the investment strategies that you believe in. So what should my viewer be thinking right now about their investment strategy versus what the market is expected to do in the next few months?

FLYNN: Well a lot of people just did their IRA contribution, so if you can get some money to the IRA throughout the year, that's a big advantage to trying to fix your withholding. When you are investing, you have to choose what to invest in. Some of the things that you want to do is you want to make sure that right now if your portfolio has drifted or you just added.

What a lot of people do is they look in the paper or they look on "Morning Star" and they look at what just did best over the last 12 months. They get out their 401(k) statement and they look for the highest returning funds over the last 12 months. The problem with that right now is that the things that return the most over the last year are some of the lower quality and more aggressive securities.

If you chase them now at this very high point in the market relative to where we are, you could be chasing last year's winners. The things that are likely to do better going forward are higher quality, more dividend paying. Those don't show up as the highest returns right now when you are looking at the options inside your plan.

VELSHI: All right. Ryan, 15 seconds, give me a mutual fund pick and some stocks that our viewers should look at.

MACK: I think the T. Rowe Price equity income fund. I think Brian Rogers has been there since 1985, and they have a great team of analysts backing them up. They are value plan investors, and they try to chase not only value but giving some good dividend yield stocks as well. And again if you want the long-term investor, McDonald's I think is a great stock right now. They are kicking a 3.2 percent dividend yield. A little risk on capital depreciation if the market does fall.

VELSHI: Guys good to have you here. As always, thank you very much, good friends of our. Ryan Mack and Doug Flynn.

Coming up next, developing story, big, big news on Goldman Sachs, major charges against the investment giant. We will have details.0

plus, from paying at the pump to the products and food on the store shelves, how much you pay is directly influenced by the price of oil. So where are oil prices headed and your expenses along with it? Stay with us.

(COMMERCIAL BREAK)

VELSHI: Big story this week. Goldman Sachs charged with fraud by the Securities and Exchange Commission. It's not every day you hear the words Goldman Sachs and fraud in the same sentence. Allan Chernoff is joining us now to help us break down the story. I will warn you ahead of time it's complicated but it is important -- Allan. ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: Ali we are going to make it simple. First of all, obviously a huge embarrassment for Goldman Sachs, the most envied firm on Wall Street. The Securities and Exchange Commission is saying that Goldman engaged in fraud essentially by deceiving investors and playing two hands.

Here is exactly what happened. This all involved mortgage-backed securities, and investments in mortgage-backed securities in an investment pool that was put together to track a group of these mortgage securities. OK. So on the one hand Goldman put together investors. Now they were buying into this investment based on the mortgage securities in subprimes, not high quality mortgages, OK? On the other hand Goldman also was doing business with a giant hedge fund, Paulson and Company, and that firm was actually betting against some of these mortgage securities.

Goldman told the investors that a third party was picking the mortgages in this investment, while in fact Paulson, which was betting against these mortgage securities was involved in selecting which mortgages were in there. So the SEC is saying a conflict of interest here, a case of fraud.

VELSHI: Where are we in this as we know? The SEC has filed charges, and the SEC charges are civil charges, they are not criminal charges?

CHERNOFF: That is right. That is all SEC charges are civil charges. The SEC has no criminal jurisdiction. This just came out on Friday, but clearly a big embarrassment for Goldman Sachs which has been saying we did nothing wrong.

As a matter of fact, have a look at "Business Week" from just a couple of weeks ago, in this issue, Goldman says, hey, we have gotten a lot of blame for the collapse of the housing market and for the AIG problems for being in bed with AIG, hey you know we were just doing business and we did nothing wrong, the SEC now begs to differ.

VELSHI: And fairness to Goldman Sachs on a lot of fronts, that's true, they were doing business. But this is a specific thing that the SEC is charging. That is not business as usual.

CHERNOFF: Exactly. The SEC is saying, look, you cannot tell your investors that a third independent party is picking the mortgages that are going to be in your investment when at the same time you have got a hedge fund that is betting against these investments, and you are doing business with them. You know, you cannot have it both ways.

VELSHI: All right. Allan thank you for a clear explanation on what is going on with Goldman Sachs. Allan Chernoff and our entire team will continue to follow this story. Tune in I will be on CNN every Monday through Friday at 1:00 p.m. Eastern. We will continue to follow any developments in this story.

On to another story that is of a lot of interest to you, the price of oil, groceries, tires, television, home improvements, you name it, the price of oil affects how much you pay for it, but it could also hurt our economic recovery. In Toronto, Jeff Ruben, he is the author of "Why your world is about to get a whole lot smaller," an expert on oil.

Hey Jeff good to see you again.

JEFF RUBIN, AUTHOR, "WHY YOUR WORLD IS ABOUT TO GET A WHOLE LOT SMALLER:" Good to see you Ali.

VELSHI: Eighty five bucks for a barrel of oil and we are still not officially able to say that this recession is over. Most people think it is, but its 85 bucks and we are in a tight spot with oil. Stephen Leeb was on earlier, and he said look at China, and look at India, they are using more oil, and he thinks the price of commodities including oil are going to go up. You agree with him?

RUBIN: Absolutely. And you know it was only two or three years ago that today's world oil price would have been an all-time record high, and now it's where oil trades when most oil consuming economies in the world are not even, have not even recovered from where they were before the recession began. So I believe that we are going to see triple digit oil prices by as soon as the fourth quarter this year.

And by next year we are going to be a sailing $147 a barrel high water mark that we set in 2008. Where we go from there, I mean that is a pretty open question.

VELSHI: Well on some levels we changed some of our behavior; some of our driving behavior in the United States for instance, $3.50, and $4 oil did that. I took us off those SUVs as much as we were depended on them, and we have changed our behavior enough to manage $4 or higher gasoline?

RUBIN: Probably not enough. There will be one other big factor and one big difference. Our first encounter has left us with the largest fiscal deficit since World War II. I mean not only do we not have room to do that again, but just as we are going to hit those triple-digit oil prices, we are going to have to start paying back those deficits. That's going to be akin to the government having its foot floored on the accelerator to slam it on the breaks, and we don't have the room to run up those deficits again.

VELSHI: Is there danger in history oil price spikes have triggered recessions, this was one wasn't triggered by an oil price spike; it was a very unusual recession. Are we worried about double- dipping or some how having a problem with our economic recovery because of the increased price of oil that you are predicting?

RUBIN: It's not clear to me that the world economy is any better to handle $147 a barrel oil next year as it was back in 2008. I think what we are going to see is we are going to keep running into the ceiling of triple digit oil prices causing back to back recessions until we start to re-engineer our economy.

VELSHI: Boon Pickins tried to do that with wind and nature gas, and others have tried it with solar wind. If we get up to $100 or beyond in oil guys like Stephen Leeb and I think you agree say that stimulates production of alternative energy that has been stimey a little bit because oil prices went down.

RUBIN: It will Ali, and it is all a matter of time. If we had 10 15 years, there is no question that we will develop new technology. Unfortunately, our rendezvous with triple digit oil prices isn't in 10, 15 years, it is maybe in ten or 15 weeks. So instead of trying to figure out how to turn cow dung into high octane fuel, we have to learn how to get off the road. That's exactly what we will do.

VELSHI: Give me something for my viewer to work with in terms of, OK, we are going to get hit by this high price of oil, in every thing we buy and everything we ship and everything we drive. Jeff is there some way I can make money off this?

RUBIN: Well I think there is a lot of ways you can make money on this. I think we are going to find there is a lot of silver linings. I think you will find that a lot of industries that we thought were gone forever, everything from steel to farming, is soon going to be coming back, not just in America but in a whole lot of other places.

VELSHI: Jeff, good to see you as always. Jeff Rubin is the author of "Why your world is about to get a whole lot smaller." Controversial book, but it is worth reading. Thanks very much Jeff.

RUBIN: Take care Ali.

VELSHI: All right. Students in another country spending less time in school but doing better in math and science than in the United States. Find out where and what we should be doing to fix our schools coming up next.

(COMMERCIAL BREAK)

VELSHI: Students in Hong Kong spend less time in school than students in the United States, yet they often out perform their American peers in reading, math and science. What is the secret? Kristie Lu Stout checks it out.

(BEGIN VIDEOTAPE)

KRISTIE LU STOUT, CNN INTERNATIONAL CORRESPONDENT (voice over): Hong Kong junior Yi-Wei Liu is at ease at the keyboard, and with the college scores. On the SATs he scored a whopping 790 in reading and 770 in math, 99 and 98 percentile scores. The secret his after school tutors.

YI-WEI LIU, HONG KONG STUDENT: I'm doing pretty well at school, in small part to my tutors.

STOUT: Yi-Wei spends four hours a week with tutors on various subjects, including English and critical reading.

And Hong Kong's Kelly Yang project.

KELLY YANG, MANAGING DIRECTOR, KELLY YANG PROJECT: There is the myth that every Chinese kid is good at math, but aside from that I think it's just that they have the access to the school, to the extra curricular activities which are going to be helping them with these different subjects, and there is a lot of priority at home for them to do well. Their parents won't take B for an answer.

STOUT: Students in Hong Kong spend less time in school than students in the U.S., and yet they often out perform their American peers in reading and math and science exams. Why? It may all come down to tradition. I'm in Hong Kong's Temple and this is the confusion hall which is honors the philosopher and his philosophy of self improvement. Researchers say it's the Chinese tradition of emphasizing education that is the top factor behind Hong Kong's top scores.

Gerard Postiglione has been studying the education system here for more than 20 years.

GERARD POSTIGLIONE, UNIVERSITY OF HONG KONG: Hong Kong and this region, it's a very test orient. There is a heritage of that. But there are also some other pragmatic reasons why. If you pass examinations you get into better schools and into better universities.

STOUT: With such an intense emphasis on getting into that better university, tutoring is huge in Hong Kong. According to a recent survey more than half of Hong Kong students get private tutoring.

LIU: The entire Hong Kong school community is very, very competitive. When I go to the U.S., for example, or even the UK, I find that people are a lot more relaxed.

STOUT: Yi-Wei is not happy with his SAT writing score, a mere 680, and that's a 94 percentile performance.

Kristie Lu Stout, CNN, Hong Kong.

(END VIDEOTAPE)

VELSHI: Sounds to me the fix is not getting people to want to do better in school. How do we fix America's schools? Boy that is a big question and we are posing it now to two good friends of our show. Hal Sparks, he is a comedian, you know him well. And by the way something of an expert on China.

Roland Martin, our CNN analyst. Kristie Lu was just talking about the things that seem to set these students apart. Is it test oriented and culture and there is a competitive demand to get into the good universities, there is private tutoring and they find Americans and westerners too relaxed. Sounds to me like we are failing on all fronts.

ROLAND MARTIN, CNN ANALYST: We are failing in certain areas of the country and certain areas of the cities, it is also based on frankly, you talk about the students, but you also talk about who are the folks behind the students? Do you have a two-parent household? Do you have a mother and father that have high expectations?

Also I think another thing we have in this country, is that there is an assumption that the people who are responsible for educating are just the teachers, when in reality you are educating a child before they go to school, when they are at school, when they come home from school as well.

When my wife and I took over the care of my four nieces, we had them in a 24-hour education boot camp. We did not allow any moment to pass where they skipped over something, allowing them to use incorrect English. It's having high expectations from day one, and following through. But you have got to be an involved person in your kid's education.

VELSHI: Let's ask Hal. Hal you know a lot about Chinese culture, what is it?

HAL SPARKS, COMEDIAN: It's true. I don't think necessarily that the parental involvement is as big as a structure there as that they really do look at education as something that is good for the country. There is a distinct section of the populist in our country that views education as a privilege and not a right.

There is an element where we also go to the parents and go you know, again what Roland was referring to the idea of a two-parent household being the ideal and that kind of stuff, that's not dealing with in I think reality as it is on the ground. Sure that might be an idea we hope for, but it's not something we can actually legislate, what you can do is fund and create afternoon and preschool programs.

MARTIN: But this is the problem with the education conversation, it's not about just legislation. Now, you said ...

SPARKS: It has to be, though.

MARTIN: No, it's not.

SPARKS: It has to be, because we can control that part of it that is the part we as a collective can actually do something about.

MARTIN: I will give you a perfect example. A few years ago I was on a program and we were talking Jonathan Kosu (ph) as well as Reverend Floyd Flake, and Jonathan ...

VELSHI: And Jonathan is a writer who has written, I mean if you want to read anything about education in this country this guy has really ...

MARTIN: Jonathan kept talking about funding and legislation. We had Rev. Flake who would say wait a minute, Jonathan, in my particular school, the average dollar spent per kid is $5,400. And he said well Rev. Flake in your case you are a charismatic leader and so you have a different idea of how you actually want the students to perform.

The point there is it's simply not just about money, the point I am making is and I saw it myself, when you have parents saying it's just your job, and then you fail. But if you don't have somebody who is saying, look, I am in partnership with you, and if I don't go to a PTA meeting or if I don't follow-through with education when the kid gets home, what they learned at school ...

VELSHI: Roland's the exception to the rule. He takes responsibility for other people's kids doing the right thing. The question Hal is what do you do and I think this is your point.

SPARKS: Well, again, you can't legislation that part of it. I can't take care of how people parent their kids, but I as a taxpayer and as a citizen can go OK, the structure of our education system has to be such that the kids that only come from a single parent home end up in as good of a position as the kids without that. That's what we have to focus on.

VELSHI: I have to end it there and this is a good conversation.

We are not going to sort it out today. I have to pay the bills. Roland, good to see you, as always. Thanks very much. And Hal Sparks sticking around actually for another blast. Stay with us.

All right. Coming up next, it's a reality check. Is too big to fail a real consent or a successful product of a spin machine? Listen to this.

(COMMERCIAL BREAK)

VELSHI: Time now for reality bites. Our reality check of some of the smaller bite sized stories out there. We are back with comedian Hal Sparks, also joining us now Rachel Sklar, editor at large, Mediaite.com.

First up, economic recovery, OK guys we heard about this, various what ever you want to call it, green shoots, signs that our economy is shifting back into gear. Job growth in January and March, increased consumer confidence in sales, all sorts of things, stock market is up.

Are we really recovering or are guys like me just thrilled to not be thought of as profits of doom, and happy to talk about any positive report that comes out on the economy.

Rachel, let's start with you.

RACHEL SKLAR, EDITOR AT LARGE, MEDIAITE.COM: The green chutes are popping up, it is hard to miss them now, and consumer spending has been up for the past three months. Big ticket items like cars have been up especially since Toyota slashed prices and all the automakers slashed to match them, and there is an incentive to buy cars. It seems things are happening. I think the economy is like a giant oil tanker, hard to turn around, but once it's moving ...

VELSHI: But once we have changed course and we see the horizon in the right direction, we do get excited about it. Hal, I have to tell you I am much happier reporting on the potential for good economic news than I am of the likelihood of bad news.

SPARKS: No question, I certainly see more grins around this place than I did the last time we talked about this particular issue. What was the number last year about this time in the stock market? Nearly half of what it is? I would hardly call that a green chute, even. It's god's tear falling on Eden as far as the stock market is concerned. Obviously jobs are always going to lag behind that and this has always been the case, it will be a big important issue but I don't think you can disregard.

VELSHI: I would say that part of the issue is that it doesn't all seem fair when the economy is going down, and it doesn't all seem fair when it's coming up. Listen to this and let's move on here. At a congressional meeting this week President Obama addressed what he hopes to achieve through financial regulatory reform.

Listen to this.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I am actually confident that we can work out an effective bipartisan package that assures that we never have too big to fail again.

(END VIDEO CLIP)

VELSHI: Is there really such a thing as too big to fail or did the media buy into that hype during the financial crises? I mean honestly, Hal, why couldn't something actually fail?

SPARKS: Well, no, it has to. And companies actually internally take care of this particular issue in that they firewall certain departments financially and in regard to how they drive their business in case one section of the business starts to collapse, so it doesn't take the rest of it with it. There is no reason why the government would not protect the economy in a similar way. Absolutely this is something that has to be dealt with.

VELSHI: What do you think, Rachel?

SKLAR: You know, I think that it's really easy to look backwards with everything that we know now and forget just how scary September of 2008 was. It really was. In hindsight it definitely was the right call to let Lehman, you know cut it loose and let it go considering all that they were doing behind the scenes. Letting AIG go really was scary. Too big to fail, I think what's clear is that you can't allow too big to fail to happen.

SPARKS: Right before it happens, yes.

VELSHI: There is such a thing as too big to fail. The issue is making sure that we don't have too much of that around. But it was a reality.

SPARKS: Any of it anymore, quite frankly.

VELSHI: You vindicated me. I love it. All right. Stay right there.

Is cashing in on tweet going to cost twitter its fans base?

But first, mounting debt is a growing problem for small business owners after a costly move to a new location the owners of a New Jersey print shop were buried under a pile of bills that they couldn't pay. With a little bit of outside help the husband and wife team found their creditors were actually willing to listen.

Here is Allan Chernoff.

(BEGIN VIDEOTAPE)

CHERNOFF (voice over): It may not look like much but this trash- ridden weed filled 15-acre lot is what Drew, Gerry and Donna Tonner to the store front across the street that now houses their printing business. Construction was about to begin on a large condominium and retail complex in Ft. Lee, New Jersey. More than two years later, the site remains empty.

GERRY TONNER, THE HUB PRINT & COPY CENTER: We moved up here thinking this would be great we could share resources and we would have visibility to the new complex across the street. No sooner than we moved in, they pretty much went bankrupt and it's been an empty lot since.

CHERNOFF: The Hub Print and Copy Center does everything from print letterhead to make keys to ship and receive mail. Without development across the street, business dropped off. Bills added up, debt piled on. The Tonner's watched restaurants, hair salons and nail shops close around them. Some of their biggest clients went under, too.

TONNER: We have to fight to get our money. Meanwhile people want to get paid from us and we have to wait to get paid in order to pay.

CHERNOFF: Enter Jerry Silberman founder and CEO of Corporate Turnaround. Silberman's company helps small businesses deep in debt negotiate with their creditors. The Tonner's enlisted his help 18 months ago. Silberman says the Tonner's problems are common among small business owners.

JERRY SILBERMAN, FOUNDER & CEO, CORPORATE TURNAROUND: All of our customers have dire situations. They all are looking for a way out of debt. These people want to pay their bills. They can't afford to pay their bills. That is the difference between a debtor and a dead beat.

CHERNOFF: Corporate Turnaround helped the Tonners prioritize their debt and struck deals with some creditors. They worked out a payment plan for the remaining debt. Now Don and Gerry are cautiously optimistic. Business picked up this spring. The town recently received proposals from four different developers interested in the lot across the street.

TONNER: If I can get through this, this little recession or whatever they want to call it, if I can survive this, I'll be OK on the other end.

CHERNOFF: Allan Chernoff, CNN.

(END VIDEOTAPE)

(COMMERCIAL BREAK) VELSHI: Back with Rachal Sklar and Hal Sparks. Twitter announcing sponsored tweets this week. Is it going to turn off the social networking sites fan base? Here is how it works; Twitter will be experimenting with some paid tweets that will show up at the top of your list. Rachel, you are a very active twitter user. Do you have an opinion on this?

SKLAR: Well, I don't want it to affect sort of the enjoyment out of my tweet stream. These are words you feel you need to put air quotes around. You're thinking about user experience. Will the user experience be interfered with? It is pretty easy like for example on my blackberry there are ads in there, I don't even notice them. Your eye learns quickly what to go to.

SPARKS: Its one more thing to ignore on the Internet. We really have become good at this. The Internet has slowly become like a shopping district in Hong Kong. There are so many lights and so many signs after a day, first time you're there, like oh my god, this is so overwhelming, then after a day you don't even see them anymore.

VELSHI: Well here is the interesting people complain about when they do a Google search the paid ads come up on top but it doesn't actually affect anybodies ability to get their information.

But Rachal here is the thing, you talk about the user experience, Twitter is unique in the Internet in its own web page, people who like the experience do it because of the content or they use some third party software to do their tweeting. Twitter almost looks like it was designed in somebody's basement and continues to be run out of someone's basement.

SKLAR: Right. I think the most important thing is the content. What remains important is sort of the authenticity of the person who is using twitter. The person you're following. Transparency, if they themselves are being sponsored.

SPARKS: Ultimately pushing them to the top doesn't actually force anybody who watches to be involved with that twittered or care more. Ultimately, it may even make them hostile to that person.

VELSHI: I was almost going to say I think it almost sort of goes away from the democratization of social media. Then it might give me some offer that makes me go to Starbucks. I'm certainly a creature of suggestive advertising. Rachel, you don't think it fundamentally damages the brand?

SKLAR: This is not the first time twitter -- their suggested user list was thrown wide open for all sorts of corporations and big names at the beginning. That's where you see the wide disparity and the people who initially had the giant following.

SPARKS: You have to uncheck his name when you sign up. That didn't translate to more people showing up to see "Spread," his most recent film. You follow somebody because you want to follow them and you like their tweets because of the consistency.

SKLAR: And you engage.

VELSHI: If they want to follow you guys. Hal you are?

SPARKS: At Halsparks and she is at Rachelsklar.

VELSHI: All right. And I'm at Alivelshi. Thank you to Rachal and Hal for being with us. You can check out Hal's comedy special. Thanks for joining me for YOUR MONEY. Christine will be back next week. Until then join our running conversation on facebook and twitter as I said Alivelshi and at Christineromans. Make sure you join us every week for YOUR MONEY Saturdays at 1:00 pm Eastern and Sundays at 3:00. But also log on 24/7 to CNNMONEY.com. Have a great weekend.