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Search for Survivors, Answers to Oil Rig Explosion; Obama Pushes for More Wall Street Regulation
Aired April 22, 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 ANCHOR: A slightly shorter version of CNN NEWSROOM.
All right. We'll get the chair fixed very shortly. Great stuff on financial reform. This is a big, big issue that we're following today.
I'm Ali Velshi. I'm going to be with you two hours today and every weekday. I'm going to take the important topics that we cover and break them down for you. I'm going to give you a level of detail that's going to help put your world into context.
So let's get started. Actually, I want to continue from where Tony was talking about. How do you change the rules of business without stifling business? That's the fine line that President Obama walked last hour and which we'll continue or he'll continue to walk for the rest of his administration.
He's made a big push for financial reform. It's a plan that's not just about Wall Street titans or obscure deal making. It's about you and me and everyone else. And I am going to work very, very hard to put this all in perspective from different perspectives.
Plus, a Gulf of Mexico oil rig is still burning. Eleven workers are still missing. You can bet the explosion on this rig was felt across the oil industry. Some are wondering how safe drilling for oil offshore actually is. Are you going to end up feeling the effects of this oil rig explosion where you live? We'll look into it.
And it's Earth Day, the 40th Earth Day. Don't worry; I'm not going to hug a tree or tell you to go all granola on me. I'm going to introduce you to people who are really changing our environment. I'm going to tell you the No. 1 thing you can do to change your environment, help the earth. And I am going to dispel a few myths.
Get on board or get out of the way. That is, in so many words, what the president's message was to the financial industry as he tries to pass the most fundamental changes in financial regulation since the 1930s.
He also says, and I am paraphrasing here, "Told you so."
As you may have seen live here on CNN, Mr. Obama returned to Cooper Union College, which is near but not on Wall Street, to make his case for the very reforms that so many Wall Street executives and their high-paid lobbyists are fighting. Now, I say return to Cooper Union because in 2008 candidate Obama warned about reckless trading, market bubbles, gaps in oversight, all of which helped create the mess that we are still climbing out of.
Today he said a rule book for the 21st century is good business, and the status quo is not.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We have seen battalions of financial industry lobbyists descending on Capitol Hill, firms spending millions to influence the outcome of this debate. We've seen misleading arguments and attacks that are designed not to improve the bill but to weaken or to kill it. We've seen a bipartisan process buckle under the weight of these withering forces, even as we produced a proposal that, by all accounts, is a common-sense, reasonable, non-ideological approach to target the root problems that led to the turmoil in our financial sector and ultimately in our entire economy.
So we've seen business as usual in Washington. But I believe we can and must put this kind of cynical politics aside.
(END VIDEO CLIP)
VELSHI: Well, the president's priorities in this bill are these. Allow big institutions that get into trouble to fail without bringing down the whole economy. Force trading in these so-called derivatives out of the shadows. I'm going to talk about that a little bit more. Spent a lot of time yesterday talking about derivatives, and we'll touch on them again in an hour. Don't miss my analogy of the punk teenager who totals his truck. That's a good way to understand derivatives.
The White House also wants a consumer financial protection agency, and it wants to give investors more say in the salaries and bonuses of Wall Street executives.
Now, the House passed a bill to this effect in December. The Senate is still struggling through. There's a partisan logjam there. It appears to be giving way. I'll be talking a lot more about all of this in the next two hours with CNN's Christine Romans, with "Forbes" Robert Lenzner, with business professor Peter Morici.
Trust me: if you've got a house or a job or have lost one or both in the economic meltdown, or a 401(k) or an IRA, you have a place in this discussion. It's important to you.
Another thing that's important to you. They're searching for survivors and answers in the Gulf of Mexico today. Still no definitive word on what caused an oil rig to blow up on Tuesday night, but there are some ideas. I introduced you to one of those yesterday on the show. It seems to be the idea that is growing in support.
No word either -- and this is the sad part -- on the fate of 11 missing workers. We'll bring you up to date with that, straight ahead.
(COMMERCIAL BREAK)
VELSHI: A story we're following very closely: the situation with an oil rig that exploded off the coast of Louisiana in the Gulf Coast on Tuesday night. It's getting increasingly desperate.
Look at these fascinating, fascinating pictures here. Look at that plume of smoke going into the sky from oil. Coast Guard cutters and aircraft are still combing the scene. There's no sign of the 11 people unaccounted for in the blast.
Meantime, a mini submarine has been sent down below the rig to try to shut off the oil flow that has been feeding the blaze that you're looking at. There are also concerns that this thing can collapse. It's tilting. And if it collapsed, we'd have a monster oil spill on our hands. There has been oil observed in the water around the rig already.
Joining me on the line is Tom Fowler. He's an energy reporter with the "Houston Chronicle," a newspaper that follows the oil industry very, very closely.
Tom, thank you for being on the line with us. You know a lot about the rig. First of all, is there something we need to be concerned about, about inherent safety of rigs, because we are using as much oil as we've ever used and we're probably going to be using more of it? The president has called for more offshore oil drilling. Is there something about rigs that we should know about?
TOM FOWLER, REPORTER, "HOUSTON CHRONICLE" (via phone): Well, they're -- obviously, they're complicated pieces of equipment that are working in very dangerous environments.
This particular rig is one of the newer ones, and certainly the company, Transocean, the biggest driller, and they've got a pretty good record of safety.
But the rigs themselves, it's dangerous, dirty work. It's -- they're working in extreme conditions with extreme pressure. Any time you stick a, you know, pipe into the earth thousands of feet, you're dealing with a lot of pressure. And of course, there's the hydro carbon. Just by the nature, it's going to be dangerous, no matter what.
This is a newer unit. There's a lot of older metal out there on the ocean, as well. But there's also been a lot of investment in the last five, ten years or so in new equipment.
VELSHI: A number of my viewers have taken issue with my description of it. I've spent some time on a rig. And they have a lot of safety briefings. Every shift that comes on gets a safety briefing. Everybody sort of knows what to do in an emergency. They've got firefighting crews on every rig because they know that help is not close. And some people took exception of my characterization of new rigs as being fairly safe. There have. In fact, your newspaper's reported on the fact that there are have been fires; there have been incident. There have even been fatalities. What's your sense of the general trend on rigs? Are they safer than they were ten or 15 years ago?
FOWLER: Certainly. I mean, the -- the standards have gotten tougher. We've had enough -- really the sort of landmark was in the '80s, that Piper Alpha accident off the North Sea that was catastrophic. I believe more than 100 workers killed in that.
VELSHI: Yes.
FOWLER: But yes, there's definitely been great strides made in safety overall. And I guess, you know -- and there's been, certainly, a heightened awareness of it.
So yes. I'd say the overall trend is good. In the last -- what we've done from our research, since 2006 in the Gulf, there's been at least two people killed in fires, which sounds bad and certainly, in your office if you had that kind of a statistic, that would be awful.
VELSHI: Yes.
FOWLER: But you know, given the amount -- number of people out there and the amount of work, it could be a lot worse.
VELSHI: Right. There's 10 -- somewhere around 10,000 people out there on a daily basis, are there not?
FOWLER: Oh, sure. Whenever there's a storm they have to evacuate. The massive haul of people on ships and aircraft, you know, helicopters to get everybody off. There's an awful -- there's a small city floating off the Gulf there.
VELSHI: Should give people a sense of this, Tom. If you've never been on or near a rig, they're on their own in the ocean. You've got a great graphic in your newspaper today where you describe, this rig could operate in 8,000 feet of water and then could drill into 32 feet of crust or something like that of the earth.
FOWLER: This is really -- drilling in the deep water is probably, in some ways, more difficult than landing on the moon. I mean, granted, it's some of the same guys that did it down here in Houston or for NASA are doing it for the oil industry. These are complicated. You can see it from miles away in helicopter. And they really -- you know, they create their own weather, almost, it seems like, there are so many of them out there and how big they are.
VELSHI: Yes. Interesting story.
I invite you to read Tom's stuff with one of the country's great newspapers, "The Houston Chronicle."
Tom, thanks very much for being with us. We'll count on you again as this develops. We may need some more information from you. Tom Fowler joining us there. All right, preventing another meltdown is what President Obama is pushing for; tougher rules to govern Wall Street. But would they really prevent the extreme abuses that we've seen in the past? Christine Romans is standing by. She knows all about this. She started her career, by the way, as something called a derivatives reporter. This is a story made for her. She's standing by. We're going to talking about how it affects you and your money when we come back.
(COMMERCIAL BREAK)
VELSHI: All right. Christine is here. We've been at it all morning. Christine is my co-host on "YOUR $$$$$." We're partners in crime here at CNN.
We got our start a little differently. We both had a lot of time in business news but Christine actually covered derivatives. She understand what's the rest of us are trying to get our head around.
We had a bit of a disagreement this morning. Christina, it wasn't really, but you pointed out, I had said that what President Obama is aiming to do is the biggest overhaul since the Great Depression of the financial regulatory system. And you pointed out that we've actually had a lot of tinkering with the financial regulatory system.
CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: Yes.
VELSHI: None of it has been to enhance it. None of it has been to enhance the rules. Mostly it's been stripping rules and regulations away.
ROMANS: Right. And you could argue that it's been an intense deregulation. You know, you'll hear people talk about Sarbanes-Oxley after the Enron crisis and the corporate corruption, you know, crimes of the early 2000s. And you'll hear about a lot of other tinkering around the edges, as I think you would say. It all seemed epic at the time, right?
But when you go back and you look from the '80s until now, there was this feeling that Wall Street was overregulated, and they were trying to wind that back. And the banks get bigger, right?
VELSHI: Yes.
ROMANS: Financial innovation got even more complicated. And the financial engineering was allowed to -- to just explode, because there was a philosophy, a theory among Congress and successive White Houses, that this was -- this was good for global growth and good for America to kind of let Wall Street be the oxygen for the rest of the economy.
VELSHI: And when everybody's getting money off of this, we're not as angry. But we should point out that, while it seems obvious today to some people that those decisions were wrong, at the time that was a prevailing culture. But let me ask you this. When people are hot under the collar about the SEC charges against Goldman Sachs on Friday, thinking that that might give steam to the president's argument, the fact is, if everything that the president wanted, if this bill that Congress has passed, that the Senate is looking at becomes law, wouldn't have any affect on the things that we're talking about with Goldman?
ROMANS: Well, look, the things with Goldman, I mean, that was a contract between two consenting individuals. The SEC, of course, is -- is charging that there were some shenanigans with how it was represented, you know, on one side to the other. So that aside, that's a customized contract.
Could that have been standardized and traded on an exchange? No. Could it have been cleared through a clearinghouse? Maybe. And one of the president's advisers this week told me, yes, maybe they could figure out how to clear something like through a clearinghouse so that at least it would be a little more transparent or, you know?
But in terms of having that become a standard contract like -- like cattle futures, some of these exotic instruments will never be able to be traded like cattle futures.
VELSHI: One's not like the other. One cattle future is similar to another. One oil future is similar to another.
ROMANS: Right.
VELSHI: You're trading the same kind of cattle, the same kind of oil.
You're going to be back with me in a little while. We're going to have a broad discussion about the pros and cons and things. Some of the issues at play here are how you govern these derivatives.
But let me just take you in another direction for a second. If you've got a city with a high murder rate, you don't -- murder was already against the law. But if you put a whole lot more policemen on the beat, and they're walking around, it has had the affect in many places of reducing the murder rate. I use that analogy to say couldn't we just enforce more and keep some of the same laws?
ROMANS: Well, that's -- I mean, and that's a good question. And one of the issues that people who are against too-stringent Wall Street reform will say is derivatives weren't the problem. As Michael Bloomberg said yesterday, he said that's the downstream effect.
The problem was mortgages that were being written that were -- all of the normal rules of the road were ignored for mortgages that were written. So -- so don't just blame derivatives. I mean, there was a failure of regulation all the way up and down the line.
And the president says there was a failure of Washington and Wall Street. He said that in his speech. There are so many moving parts to what went wrong, Ali. I mean, think about it. Think of how many different things all collided to go wrong to tear this whole thing. It's actually quite stunning.
VELSHI: Yes. That's why this is an important discussion. Because while we're a little distance away from it, it sounds so hard to comprehend. And it's tough to explain to people who don't deal in derivatives on a daily basis. But this is important to you.
You're going to be back with us. We're going to have more of a discussion --
ROMANS: Yes.
VELSHI: -- why there are some specifics in this legislation people should be concerned about or not.
Christine and I are co-host of "YOUR $$$$$," which you can see Saturdays at 1 p.m. Eastern and Sundays at 3 p.m. Eastern, where we get into a lot of these topics a little more deeply than we do here. So please join us there when you can.
Let me give you a check of the headlines we're working on.
First-time jobless claims have fallen for the first time in three weeks. Those are the first time people lose their jobs and they first go claim unemployment. Still, the numbers are high. Three were 456,000 initial claims last week, 456,000 people going to claim unemployment for the first time. But that is down 24,000 from the week before.
The drop isn't quite as big as economists were expecting. But it's important to note these weekly claim numbers can be very volatile.
A warning from the State Department to Americans in India: be on guard for possible terrorist attacks. Officials aren't saying exactly what kind of intelligence they have, but they are warning of strikes in New Delhi, possibly at crowded markets.
In Europe, air travel is getting back on track after that volcanic eruption in Iceland. Flight schedules are expected to run about 100 percent today, actually. It's going to take a while, though, to work through all the disrupted travel plans and the backlog of people who are in the wrong place and planes in the wrong place. The volcano shut down air space and stranded thousands of passengers for about a week.
Migraine sufferers, here's an interesting one: you may soon be able to get some relief. I know you've probably heard that before, but there is a new drug in development. Sanjay Gupta joins me to talk about it.
(COMMERCIAL BREAK)
VELSHI: I'm not one of them, but I know a lot of people who suffer from migraines, and they are debilitating. Sanjay's with me right now to talk about an experimental drug, something that might be out there fairly soon that -- that can help a number of people who can't be helped by the current medications that are out there.
DR. SANJAY GUPTA, CNN CHIEF MEDICAL CORRESPONDENT: That's right. And there's a lot of them, Ali. These are terrible headaches. I get them. I was walking around the newsroom today. A lot of people came up to me saying they get them. You get a headache. You're bedridden. Sometimes your vision goes blurry. And for about a third of people out there, they simply have no options right now.
Either the drugs don't work at all, or there's a drug out there that works for just some people, or the side effects are too significant.
One of the concerns is a lot of the way these medications work is by constricting blood vessels.
VELSHI: Yes.
GUPTA: And if you have heart disease or you've had a concern about stroke, you're not going to be a good candidate for those medications.
VELSHI: Right.
GUPTA: So it's been -- the search for some time, Ali, to find a medication that still alleviates the pain but works in a totally different way.
VELSHI: So this drug that's being tried out does something entirely different. It's got nothing to do with the blood vessels?
GUPTA: That's right. It works on a totally different receptor.
VELSHI: Right.
GUPTA: And so it gives pain relief in that way. It's a Merck medication. The clinical trials were all done by Merck so far. But the reason we're talking about it is that it came out in a medical journal now. And it's got some buzz around it potentially...
VELSHI: Right.
GUPTA: ... you know, to offer something brand new here.
VELSHI: Obviously, these clinical trials are -- determine the affect and the potential side effects. There's one side effect here that sort of caught folks' attention. And that's the effect that it may have on your liver.
GUPTA: Exactly. So the way, you know, clinical trials work. And this may be similar to some of the things in your world. But maybe you guys should have more clinical trials in your world. I don't know.
VELSHI: That's true. That's a good idea.
GUPTA: Start with phase one, phase two, and phase three. VELSHI: See how it works before you implement it. Yes.
GUPTA: It's a novel idea.
VELSHI: Yes.
GUPTA: Some of the safety trials are early on. They did find that people's liver enzymes go up. And that means that the liver has somehow taken a hit. When they stop the medication, liver enzymes went back down.
But look, if the liver enzymes stay up --
VELSHI: Right.
GUPTA: -- in this continuing clinical trials, this may be a drug that never gets to market and never should. But in medicine, you build on knowledge.
VELSHI: Right.
GUPTA: Now they've proven you can alleviate pain in a totally different way. Now find me a drug that doesn't have those side effects.
VELSHI: And in many cases with these drug companies, nine out of ten drugs don't make it all the way through that process.
GUPTA: That's right.
VELSHI: What are we talking about, time-wise? If this were to work, when might people be able to use it?
GUPTA: It will still be a few years at least, because right now they're doing -- they test to how the chronic effects of these medications and then also how fast does it work, as well.
VELSHI: Right.
GUPTA: Test safety in both those things. At the phase three level, Ali, you need thousands and thousands of patients.
VELSHI: Right.
GUPTA: And there's a lot of migraine suffers out there. But you've got to follow them along for months in the FDA approval process. Two to three years at a minimum, probably more like five.
VELSHI: Now migraines, you know, for those of us who don't suffer, they sound like really bad headaches. But they're much more than that to some people. It's nausea; it's vomiting. It's all sorts of things. And you were telling we that there's a population that, unfortunately, is not helped by any medication, may not even be helped by this.
GUPTA: That's right. And those people oftentimes have to take preventive medications. They get headaches so frequently that it's better to prevent them. And they also have to figure out their triggers, for example.
VELSHI: Right.
GUPTA: So for example, chocolate can be a trigger. Tough trigger if you like chocolate. Red wine can be a trigger. That might be bad for you if you're a red wine drinker. The triggers are an important thing to find out, as well.
VELSHI: Is weather a trigger?
GUPTA: Weather can be a trigger, as well.
VELSHI: Well, that's a perfect segue. Good to see you. Thank you for this.
(WEATHER REPORT)
VELSHI: Reynolds, good to see you.
REYNOLDS WOLF, AMS METEOROLOGIST: You bet.
VELSHI: Good to have you.
Reynolds Wolf covering the weather for us today.
All right. New rules coming from Wall Street, probably. And you actually are going to feel them on your street, too. We're going the get some history, and we're going to peer into the future with these three experts as soon as we come back.
(COMMERCIAL BREAK)
VELSHI: President Obama says he wants -- and I'm quoting him -- "a set of updated common sense rules to ensure accountability on Wall Street and protect consumers," end quote. You heard him here live. A blunt speech on the home turf of the institutions that he credits with fueling prosperity and blames for the worst recession since the Great Depression.
The rules that he's promoting would likewise be the biggest financial regulatory overhaul since the 1930s.
Check out this time line, just to give you a sense of how it works. In the wake of the Depression, we got what was called the Glass-Stegall act. You probably heard about that a lot. It kept commercial banks separate from investment banks and also set up the FDIC. The next year, we got the Securities and Exchange Commission, the SEC.
Fast forward. There are little things that happened in between. But fast forward, really, to 1990. Wake of the sell-off known as Black Monday the markets reform ac, and SEC was strengthened again. In 1999, six (sic) years after Glass-Steagall, Congress repealed that. The wall between commercial banks and investment banks came down at that point. Three years later came the law known as Sarbanes-Oxley. That was on the heels of Enron and WorldCom and accounting scandals. That changed accounting standards on Wall Street.
Now, let me just show you along the same span -- I want of show you another graphic. Along the same span of time -- those were the regulatory changes, came some other things. The savings and loan collapse of the 1980s. And then after that, long-term capital management. You heard about that. It taught us about the potential risks of hedge funds.
And then it was "too big to fail," before we knew that "too big to fail" was common. But things failed. We all remember the Enron debacle in which rules already existed were largely side stepped. And later, of course, came the Madoff scandal, a spectacular failure of oversight by the Securities and Exchange Commission.
So, what should the next Wall Street milestone look like? I'm joined by Robert Lentzer of "Forbes" magazine. From the University of Maryland, business professor, Peter Morici, and my co-host for "YOUR $$$$" Christine Romans, who was with us a few moments ago.
Bob, I'm going to start with you for a second. We always talk -- we showed you all the scandals and all the bad things that happened. Ultimately we tend to regulate the last thing that happened. We fix the last leak. We don't always know what the next leak is going to be. So, how do you do this in a smart way?
ROBERT LENTZER, COLUMNIST, FORBES MAGAZINE: Well, I think you made it very clear. There's a tension between having free markets and having regulation. And he wants to find the mean between those two so as to make sure that what happened the last two years never happens again.
So -- he also, the most apt moment in the speech was when he quoted for your time line "Time" magazine 1933 about how Wall Street was scared and upset that a new law had been passed. What was that new law? It was the federal depository insurance.
VELSHI: Very effective quote the president had in the speech. Let me read it to you. Do we have it? Can we play that, Valerie?
LENTZER: Because, Ali --
VELSHI: Yes. Hang on. I want to see if we got that -- what the president said. Bob, listen to this. This is what he said.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I read a report recently that I think fairly illustrates this point. It's from "Time" magazine. I'm going to quote. "Through the great banking houses of Manhattan last week ran wild-eyed alarm. Big bankers stared at one another in anger and astonishment. A bill just passed would rivet upon their institutions what they considered a monstrous system. Such a system, they felt, would not only rob them of their pride of profession but would reduce all U.S. banking to its lowest level." That appeared in "Time" magazine in June of 1933.
(LAUGHTER AND APPLAUSE)
OBAMA: The system that caused so much consternation, so much concern was the Federal Deposit Insurance Corporation, also known as FDIC. An institution that is successfully secured the deposits of generations of Americans.
(END VIDEO CLIP)
VELSHI: Peter, it was a good selection of somebody to talk about. Free markets, Peter, are by their very nature, dynamic. They are innovative. They defy tradition. So, we love them, right? I mean, I'm going say it right now, and I bet you some blogger is going to take it out of context. I love free markets. I think they're a great idea.
But we do need some regulation. If we're trying to find a balance, how effectively does a president do it, and what would you do differently than what he's doing, Peter?
PETER MORICI, BUSINESS PROFESSOR, UNIVERSITY OF MARYLAND: For free market you want transparency and you want an absence of super- sized firms that are not only too big to fail, but are so big they set prices. And what this financial regulation fails to do is to cut the Wall Street giants down to size. The president talks about resolution authority for big firms, and --
VELSHI: Right. And that's what the FDIC does have. When FDIC takes over a bank, they're the boss. They can fire anybody, they can keep some people around, they can close it down, they can sell it.
MORICI: The FDIC has resolution authority right now with regard to Citigroup. But the reality is, CitiGroup is too big to resolve. Passing this law really doesn't change that. If you wanted to get rid of too big to fail, you separate banks, like CitiGroup's old banking activities, old First National City, from all of it other financial activities. The same thing with, say, JPMorgan's banking activities.
And then you cut them down to size. You say you can only have maybe 4 percent of deposits nationally instead of -- I think CitiGroup's around 8 percent. But we have about five or six banks that have 40 percent of deposits. So, when they fail, we can't put them inside another bank.
Transparency, derivatives, great. Put generic derivatives on a platform. The problem is -
VELSHI: Christine --
MORICI: Hold on --
VELSHI: OK.
MORICI: -- is that the real absence of transparency was in the creation of mortgage-backed securities that no one could rate or understand. I don't see how this fixes that.
VELSHI: And Christine, you pointed out, in the study you've done of this that, in fact, some of the things that have caused this economy to suffer the way it has in the last couple of years will not be fixed by this regulation.
CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: Right. And they squeak by. Not to say that the things that they're -- different things they're trying to do aren't valuable or wouldn't take risk out of the system.
But when you look at kind of individual little parts, maybe it would be a little tougher.
One of the things, Ali, that I think is interesting about this, and you and I have talked about this before, this reform goes from everything from what your credit card statement looks like to what -- how you pay your mortgage, down to these complex financial engineering that no one can understand except the guy who wrote it and the guy who bought it.
You know, it's everything. It really encompasses everything. My question, I guess for you guys, is are there going to be so many exceptions and carve-outs that, you know, they can sell it to Wall Street and then it loses some of its teeth? Do we think there would be loopholes and there will be ways that some people would be able to get around their particular kind of derivatives or their particular kind of proprietary trading desk so that it doesn't apply to them?
LENTZER: Well, it could be, but I want to correct one thing, and that is the Volcker Rule -- Obama said very clearly today would limit the size of the major banking institutions. He did not talk about breaking them up into pieces, which some other people are proposing.
But he did say he wanted to limit the size. The Volcker Rule would limit the size and also limit the risk that these major institutions could take.
Now, there's one more thing that's being proposed in the Senate bill that he did not mention, which is Senator Lincoln of -- I forget what state she's from. Senator Lincoln wants to take all the derivative trading away from the major institutions and put it in separate institutions so that trading would not risk the major banking institutions --
VELSHI: OK. Hold the thoughts, guys. I want to continue this. You guys are so thoughtful about this, and this is the kind of discussion that is so important to our viewers. I'm going to put this question to you when I come back. If I am one of those people who is a party of one of these very sophisticated, complicated derivative vehicles, do I want the government, who may not understand this or may not be as nearly as creative or innovative as I am, come in and telling me, I don't understand this. You might be risking the economy, so you can't do that."
I want you to ponder that for a second. We're going to come back and talk about this with my guests. We're going to talk about the risk of doing nothing versus the risk of doing too much. Bob Lenzer, Peter Morici, Christine Romans joining me after the break.
(COMMERCIAL BREAK)
VELSHI: Breaking news in now. We just have word from the U.S. Coast Guard that the rig is deteriorating. The condition of the rig is deteriorating. We have seen recent pictures where the rig continues to burn. It is listing. There is a major concern that if it continues to list, it will sink. If it sinks, that is going to create a remarkable environmental problem with oil being released -- more oil being released.
All right. I am now just getting news in. This rink (sic) -- the U.S. Coast Guard is confirming the rig has sunk. The rig that is about 50 miles off the coast of Louisiana in the Gulf Coast that suffered an explosion at about 36 hours ago has now sunk. This was a concern. We are getting more information about this. You're looking at pictures. These are taped pictures earlier of the battle to try and get that under control.
But the Deep Water Horizon, which is the name of the rig, operated by Transocean been on behalf of BP, Deep Water Horizon has sunk in the Gulf of Mexico. This is in modern times outside of a hurricane -- lately, almost unheard of. There have been accidents, there have been fires, there have been some fatalities over the years. But first of all, we have not seen an explosion or a mass I incident on a rig outside of a hurricane for some time.
But to see a rink -- a rig actually -- go down into the ocean is a very, very serious and concerning matter. We're going to discuss the impact that has on safety in the water and offshore rigs. We're going to bring back some of our experts on that. We do have it now from the U.S. Coast Guard the oil rink -- the oil rig -- has sunk in the Gulf of Mexico. We'll bring you more information the moment we have it.
For the moment, let's go back to our conversation now in another big story we're following with Robert Lenzner of "Forbes" magazine, University of Maryland professor Peter Morici and my co-host, Christine Romans.
Peter, I'm going to start with you. There is a legitimate, I think, argument against reform that says can the reformers understand the speed at which Wall Street innovates, and it will reform -- will regulation somehow stifle or hobble innovation?
MORICI: Well, if in the derivatives market we try to shoehorn everybody into standardized contracts, it surely will not only harm innovation, but it will also harm the firms that have legitimate uses for these things. Chemical companies, steel companies, automobile companies that buy commodities, for example, have legitimate different hedging requirements. They also have legitimate different hedging requirements if you're an insurance company or manufacture with regard to interest rates. So, derivatives tends to be structured, contracts, in specialized ways. Creating a platform, for example, will not keep us from having the kind of fraud that we had with Abbacus and Paulson Company if you do determine --
VELSHI: Alleged fraud at the moment.
MORICI: Alleged fraud, correct. Because the issue here is somebody hiding information. You're going the hide that information whether you seek a buyer, calling them on the phone or putting it on the platform.
VELSHI: So, back to Bernie Madoff, for instance. Whether or not you think the SEC did its job, Bernie Madoff broke laws. Those laws were not enforced. So, that's an enforcement issue as opposed to legislation.
MORICI: Right. And a lot of this is enforcement. A lot of this is failure to enforce the laws we have.
But there's another set of issues. Do we have, for example, too many synthetic contracts which are merely betting? I don't see how this is going to rein that in very much.
VELSHI: All right. Robert, what do you think about that? What do you think of the argument that these -- this kind of regulation might be overreaching like some conservatives are talking about?
LENTZER: I don't think it's overreaching. I think we need -- I don't think they have a solution for it yet. But clearly we need to have total transparency of all of these transactions. We need to know who is doing what to whom. We need to know the amounts of money that are involved. And short of that, we'll have another disaster down the road.
So -- the problem right now is the people making all the money out of these derivatives don't want this regulation to take place. They want some little regulation, but they don't want the whole thing transparent because it's such a big profit center.
VELSHI: Christine, last word to you.
ROMANS: Ali, it's interesting. I was on the conference call yesterday from Goldman Sachs. They were asked point-blank do you agree with standardized over the counter derivatives markets and using clearinghouses, and the chief counsel said, yes, we agree with most of the legislative proposals, the bulk of the legislative proposals out there in terms of derivatives. That kind of brings us full circle, right? Goldman Sachs says, no, we're aware of what they're trying to do, and it's fine with us.
VELSHI: We'll continue to discuss this. Thank you for great input on that.
We'll be back with Bob Lentzer and Peter Morici in the next hour. There really are some remarkable issues. In the meantime, send me your comments on Twitter and Facebook. The questions that you want those guys to answer so that you can understand this better because it's going to come to a vote. It may pass. This may become the law of the land. You need to know about it.
I want to also bring you back to a major news story we're following. Breaking news that we just have in that that oil rig in the Gulf of Mexico that we've been following for the last couple of days has sunk.
That is an oil rig that is run by the company Trans Ocean. They are a contractor. It's called the Deep Water Horizon. It's about 50 miles off the coast of Louisiana. We're getting more information, but the Coast Guard has confirmed that rig has gone down into the ocean. We'll bring you more about that on the other side of the break.
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VELSHI: Okay. Breaking news. The Deep Water Horizon, the oil rig in the Gulf of Mexico we've been telling you about, has sunk. Per the U.S. Coast Guard, 11 workers are still missing.
Let's go right to Mike Berry. He's the chief senior petty officer with the U.S. Coast Guard. He's on the phone with me right now. Sir, thank you for joining us. You have information now that this rig has gone under?
MIKE O'BERRY, CHIEF SENIOR PETTY OFFICER, U.S. COAST GUARD (via telephone): It has gone under the surface at about 10:21 this morning. Coast Guard got word that the vessel has gone under. And just recently, we got word that the fire visibly has gone out.
VELSHI: What's the implication now of that having gone under? We've seen it burn, which means some petroleum was burning, natural gas or oil. At this point, is that oil in danger now of escaping into the sea?
O'BERRY: That is correct. We've got the potential right now is you've got to almost 336,000 gallons of sweet light crude oil per day that was coming out of that well. So, that oil will be released into the water now. The priority is working with our partners in this, especially BP and getting the environmental part of this under way.
Coast Guard is still searching for those 11 missing crew members as well. But we have crews standing by out at Morgan City and all different staging areas to start doing everything we can do mitigate the pollution impact.
VELSHI: You are working hard to find those 11 missing working very hard to find the 11 missing workers. They are the 11 not accounted for. So, 126 I believe, were rescued. Eleven are missing. How -- where's the search for them? How is that being concentrated?
O'BERRY: The search is still concentrated primarily around the rig. It has expanded somewhat by several square miles, obviously with some currents. Weather conditions out there right now are favorable for our search and, you know, we've had helicopters up there. We've had a couple of cutters at a time out there. We continue. As long as the Coast Guard feels there's a probability that they're still alive, we're going to continue searching.
VELSHI: I understand you sent a submersible down earlier to try and deal with the oil that was burning?
O'BERRY: Right. We did -- earlier, today and yesterday, there were two actually ROVs were trying to cap that well down there. Obviously with the dynamic change of the fire and with -- we were -- sometimes they were pulled back and they were not successful at this time, but there will be other plans in place to try to cap the well and mitigate the pollution.
VELSHI: Michael, think back as long as you can, do you -- when was the last time outside of a hurricane environment that we you a an oil rig go under?
O'BERRY: I -- as long as I've been here, I don't think we've had anything that's been this significant in size. You know, it's an inherently dangerous business that they do, and, you know, the Coast Guard helps them make sure their safety procedures are in place. And there's 30,000 of these workers every day that go out to the Gulf to do this work, and they're well trained and they work to try not to have these accidents.
But on this day, something went wrong, and now, you know, we're working with BP and TransOcean to try to find the cause. We're working on that investigation and we're going to -- so, you know, it doesn't happen again, and also make sure we can control that pollution and do everything we can to help find those 11 missing crew members.
VELSHI: TransOcean is the contractor. They have leased that -- the oil production from that vessel to BP. Michael, will you stay with me for a second, please?
O'BERRY: Absolutely.
VELSHI: All right. Hang on. We're going to just take a quick break. We'll be back with Michael O'Berry, senior chief petty officer with the U.S. Coast Guard in a second for an update on the rig and the workers.
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VELSHI: Senior chief petty officer Michael O'Berry joins me on the line. He's with the U.S. Coast Guard. He's been keeping us up to date on what's going on with the oil rig, the Deep Water Horizon, and unfortunately, we've just learned that oil rig has sunk.
He continues with me on the phone.
You've got two things going on, Michael. You've got now the efforts to deal with the remediation of all the oil that is coming out of that -- that hole, that that rig was involved in. Do we know anything about that right now? Do we know whether oil is spewing out into the Gulf of Mexico, whether there's a drill bit stuck in there? What do we -- do we know anything?
O'BERRY: Those details, not yet. I think with the recent extinguishing of the fire will help us obviously assess this better. When that fire was going, some of the oil that was coming up as well as the diesel that was on board, helped fuel that fire, so it kind of kept us at bay from really getting in there and finding ways to slow this down.
But, you know, now with -- you know, we kind of move on to the next phase of what this is. You know, we kind of -- you know, we train and plan for this. The Coast Guard's national strike force is en route to help with the pollution response. And working with BP, we'll also be able to, you know, get skimmers and stuff, and actually get in there and see what the problem is and how best to stop it.
VELSHI: Right. When you and I talked yesterday -- and you can sort of see this when you look at the pictures of the fire. There's probably two things going on here, right? The oil and the natural gas from the hull that is burning, and there's the diesel that is stored on board to power that rig.
O'BERRY: Correct. Yep.
VELSHI: Okay. Now, there's a second part to this, and this is the very sad part. Where do we think the 11 workers are?
O'BERRY: It's -- and, you're right, the Coast Guard, with this search and we continue with cutters and aircraft out there looking. You never know. And the Coast Guard, you know, our focus is always if there's a reasonable probability that they are alive, we're going to keep searching. And what we look at is we've done interviews with crew members, survivors that are back onshore and trying and get a sense of where these crew members may have been.
It's part of the investigation to find out what happened and basically from that information, you know, it still gives us a probability that they may be alive. Somebody may have been at a location but may have walked away to take a phone call or something like that. So, we use all that information, and as long as our rescue folks think there's a probability that they're alive, we're going to keep searching.
VELSHI: Michael, are we -- we hope they got into a raft maybe and got away. Do we know that there's a raft that's not accounted for?
O'BERRY; We're not sure on the exact count.
VELSHI: Yes.
O'BERRY: We weren't -- because the Coast Guard wouldn't have the number of rafts on board before.
VELSHI: Yes. O'BERRY: So, when they're searching, all those probabilities are, you know, taken into account. Are they in a raft? You know, they could be floating on a piece of equipment. They could be, you know, if they're wearing life jackets, you know, they could be in the water, all those different things we take into consideration. So, that's why we surface assets as well as air and get out there and do a very intensive search.
VELSHI: Okay. Senior chief petty officer Michael O'Berry, stand by. He's with the U.S. Coast Guard.
Breaking news in right now that we're covering. The deepwater horizon, the oil rig that had the explosion on it, has sunk below the surface in the Gulf of Mexico. We'll continue our coverage of this in a moment.
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