Return to Transcripts main page


Financial Reform Debate; Goldman Sachs Under Fire; Derivatives and the Global Economy

Aired April 24, 2010 - 13:01   ET


ALI VELSHI, HOST: If you have a bank account or a 401(k), or even a pulse, you have to stay in the financial reform debate that may well rewrite the rules for Wall Street. Welcome to YOUR MONEY, I'm Ali Velshi.

CHRISTINE ROMANS, HOST: And I'm Christine Romans. From Goldman- Sachs, under fire to preventing another meltdown, we have every angle covered.

But first let's take a look at the president's plan. This is what he wants to accomplish with new rules for the road. New rules for too big to fail to prevent those bailouts that Americans have come to despise. He wants limits on bank risk taking and a more transparent derivative market. Did you know how big this market is and there are literally no light shining on some corners of this big, big trading market.

Also, stronger consumer protection for everything, Ali, from your credit cards to your mortgage to those complicated derivatives contracts that could affect your life. The weekend after President Obama brought his case to Wall Street so many of you still have many questions starting with, what the heck is a derivative? Here is the president's explanation.


BARAK OBAMA, PRESIDENT OF THE UNITED STATES: They weren't fully aware of the massive bets that were being placed. That's what led Warren Buffett to describe derivatives that were bought and sold with little oversight as financial weapons of mass destruction.


VELSHI: Now I would be willing to bet that most people out there, Christine, know more about derivatives than they think. Derivatives in the financial sense are bets. They're bets on the future price of this or that, of corn or oil or the risk of something happening, like a hurricane, for instance. Why am I telling you this? Well reckless trading in derivatives tied to the mortgage crisis helped turn a downturn in the U.S. housing market into a full-blown catastrophe from which we're still recovering. AIG, Bear Stearns, Lehman Brothers, name something synonymous with the meltdown and there is a good chance Christine that derivatives are at the core of it.

ROMANS: Now, Ali's not exaggerating the power of popularity of derivatives by the conservative estimate of the U.S. Treasury, some $600 trillion worth of derivatives were held by investors as we speak. Look at how that compares with the entire growth of the global economy. The output for the world is only $60 trillion, only $60 trillion. But see it is ten times the size of the global economy.

VELSHI: I have to say, Christine, I don't know if you had the same experience, but on my Facebook page, we got a lot of comments from people who are very troubled by this idea of these secret derivatives and in fact I'm worried that we're giving derivatives a bad name.


VELSHI: Because of all this. Let's bring in somebody who knows a great deal about this. Neal Wolin is the deputy treasury secretary; obviously the Treasury Department is very involved in this move. Neal, tell us what this new legislation, the legislation that's passed the House, the Senate is working on, that president and you folks at Treasury want to pass? What is that going to do about this world of derivative, the bad part that nearly brought our economy to its knees?

NEAL WOLIN, DEPUTY TREASURY SECRETARY: First, it's good to be here. Derivatives are, been a very big loophole in the financial services to date, and we think it's really important for them to be brought within the regulatory structure, to make sure that there's transparency in these markets so that people know what prices are, that regulators know what's going on. Are capable of policing these very important instruments that as you say, if used properly plays a very important role in the management of risk with businesses all across the country.

But it needs to be done transparently where people can see what the prices are, what's going on. Allow us to manage the risk that these instruments can create if not used properly. So that's fundamentally what this legislation would do with respect to derivatives.

VELSHI: Neal, let me ask you this. A lot of folks are focused on what happened, the SEC charges against Goldman-Sachs, allegations only. But let's think about this. You have a hedge fund manager, John Paulson, allegedly betting against the housing market saying that mortgages are going to be unpaid. That turned out to be a good bet. This regulation that we're proposing actually would have nothing to do with what Goldman has alleged to have done? The rules of their alleged to have broken.

WOLIN: Well again I want to stay away, Ali, from the particulars of an SEC enforcement action. The SEC is an independent agency and it's pursuing this manner independently and frankly we at the Treasury and the executive branch don't have anything to do with. I think what is the case, however, is that with respect to all derivative transactions, this legislation would make sure that they're brought out into the open. That people understand what exactly took place.

That people understand what the prices were and can understand how that might affect the broader marketplace. We think that's a critical aspect of this legislation that is go for the financial system. It's good for people who use derivatives and it is good for the public in general to have confidence that this important part of our financial system is well protected, and well looked after.

ROMANS: Can I just ask you a simple question about why you think we are getting it right this time? I mean throughout history we've tended to fix these fires after they've burned themselves out or after the problem has -- you know what I mean? We fix after the fact. How do we know that what we're doing today is going to be the right fix to prevent this from happening again?

WOLIN: Well, I think, Christine, an important part of this legislation is to make sure that the loopholes that existed for too long, things that weren't part of the regulatory framework for which there weren't rules of the road are brought within the system, and then have regulators have the capacity to make sure that they are looking around corners.

Obviously, the world will change, but we think that it's important that everything be brought within the framework, that we have full transparency, that we have strong rules that will protect consumers and also investors, that make sure that financial institutions have adequate capital and other kinds of protections in place to make sure that the system is well buffered in case there are issues that come along that perhaps we haven't planned for. So that the system has the capacity, the absorptive capacity to withstand the kinds of shock that happen from time to time.

VELSHI: Neal good to see you, thank you for joining us, thanks for shedding some light on this. Neal Wolin is the deputy treasury secretary.

President Obama says that he wants this, what he calls a set of updated common sense rules to ensure accountability on Wall Street and protection for consumers. Is his plan going to achieve that? I think Christine; you were just sort of getting into that.

Let's go to Peter Morici, he is the University of Maryland business professor, and Douglas Holtz-Eakin, who is the president of the American Action Forum. Gentlemen thanks for being with us.

Peter, you and I talked about this with Christine this week. Will this legislation that the president's pushing achieve what you -- what his goal is? On creating a consumer protection and a common sense updated set of regulations?

PETER MORICI, PROF. UNIV. OF MARYLAND SCHOOL OF BUSINESS: I don't believe that they will adequately update the regulations because they don't deal with some of the most fundamental problems. With regard to too big to fail, it isn't clear how they're going to bring these institutions down to size. We already have resolution authorities through the FDIC to deal with Citigroup. But it's just too big to sell off its pieces. So when that bank failed, they basically had to bail it out. Now they're going to have a $50 billion bailout fund. Heck. Citigroup alone cost that much, and then we had to guarantee, $325 billion of its loan. We don't know what that really means.

Never mind all the other institutions. Now I don't think we've gotten our arms around this problem to focus on derivatives as misplaced. I think there are other things that are more fundamental that need to be addressed.

ROMANS: You know you mentioned derivatives, I want to talk about something that the former president Bill Clinton said over the past week to Jake Tapper (ph) at ABC, Jake asked him, you know look did you get bad advice from Robert Rubin and Larry Summers when you were president of the United States and was it a mistake not to regulate derivative 15 years ago? This is what he said.


BILL CLINTON, FMR. PRESIDENT OF THE U.S: Now, on derivatives, yes I think they were wrong and I think I was wrong to take it, because the argument on derivatives was that these things are expensive and sophisticated, and only a handful of investors will buy them.


ROMANS: Doug, should we have been regulating derivative a long time ago? Was that a mistake?

DOUGLAS HOLTZ-EAKIN, PRESIDENT, AMERICAN ACTION FORUM: There's not only a case to be made for the government having interest in having exchanges in clearinghouses, there is a case to be made that the business community wanted it as well. One of the things that will happen with derivatives, particularly the standardized derivatives, being traded on exchanges is you will get better clarity on prices. Better competition and the cost of hedging risks could actually go down and that would be a tremendous benefit to everyone.

VELSHI: Let me ask you this, Peter. You said you think the focus on derivatives is misplaced. One of the reasons, I should just tell my audience why we're focusing on derivatives when there are other parts of this legislation that the president is focused on, is that the others are largely agreed upon. This is the contentious part; this is the one that folks are objecting to. What do you think the focus should be on, if not derivatives, Peter?

MORICI: The amount of collateral that is requiring writing a derivative that is, AIG had very little money available. Just increasing capital requirements affirm generally won't cover the problem. Think about it. $600 trillion in derivatives and in $60 trillion dollar global economy.

VELSHI: We're talking about the bets that are ten times the size of the global economy, or however you want to measure it. How do you --

MORICI: Five hundred times the size of the U.S. economy. You just can't. ROMANS: I think what we can agree on is that the derivatives are not the only problem. Mayor Bloomberg this week, of course, he is an advocate for New York City, where there's profit from these things, but he says, remember that derivatives are downstream from the problem, and the problem can go all the way up to shady mortgages being written.

MORICI: That's my point.

ROMANS: I mean you can go all the way back to the very beginning of this crisis. So Doug I guess bring it full circle for us. I mean we got a lot of problems that caused this altogether. Do we fix all of them in this legislation?

HOLTZ-EAKIN: I think we make great steps forward but I agree with Peter that the legislation in the end doesn't change the fact that we have banks that are extremely large. That no one believes they can be unwound quickly in a crisis. The key then would be to avoid a future crisis by doing a better job on mortgage origination, that's where the problem started.

Doing a better job on transparency and derivatives. What happened in the crisis was not that somehow the derivatives market failed. What happened was, people got scared the people they were trading with were broke and everyone panicked. Having these things on exchanges, having collateral behind them will give people confidence that their parties were still sound that would mitigate the fallout from the kinds of problem we had this time around.

VELSHI: It is great to talk to you thanks so much for being with us. Douglas Holtz-Eakin is the president of the American Action Forum and Peter Morici is the president, professor, I'm sorry, made you the president of the University of Maryland.

MORICI: I would love it.

VELSHI: I'll make you a reference. Professor and economist at the University Of Maryland School Of Business.

Goldman-Sachs is in hot seat, of course, after that SEC fraud charge. Just how strong is the SEC's case? Where does Goldman take it from here? We'll discuss that when we come back.


VELSHI: Goldman-Sachs remains under fire one week after the SEC charged the company with fraud. The drama only builds as we learn new details every day about the players and what is the most serious challenge of Goldman's reputation yet. My favorite player is someone who calls himself Fabulous Fab.

ROMANS: And you know, Ali, we'll meet him on Tuesday. He's going to testify on Tuesday and we're going to meet the Fabulous Fab trader who according to those SEC documents is the one who said, the wreckage of the CDO market, there will be one survivor and it will be me the guy who made all these complex instruments. You know a lot of interesting players in all of this. Including number 45 on the Forbes Billionaire List. Goldman-Sachs itself, Lloyd Blankfein, the CEO of Goldman-Sachs and a lot of interesting folks right down to the "Wall Street Journal" Ali, this week tracked down the homeowners who defaulted on the mortgages that caused all of this stuff. They go right down to the homeowners.

We're going right down to the basics on this story and where it goes from here. Matt Taibbi, contribute editor of "Rolling Stone" and Chrystia Freeland global editor at large, Reuter. You know lets talk about this story, you guys. Every day we're learning a little bit more about it. How big of trouble is Goldman Sachs in Chrystia?

CHRYSTIA FREELAND, GLOBAL EDITOR AT LARGE, REUTERS: You know what I think is really important about this story are implications for Goldman-Sachs, an implication for financial reform. Goldman Sachs you know, Goldman Sachs is not a fly-by-night operation. These were the best, the brightest, the smartest, actually Goldman-Sachs is a big Wall Street firm, is the one that navigated the financial crisis best. They of the big Wall Street firms actually figured out that subprime were going rotten.

So I think the reputational damage is more important even than the charges, and I have heard from a lot of people on Wall Street, people saying, you know, Goldman used to be historically a firm that prided itself on putting its clients first, and the tricky thing for Goldman now is, are people going to believe that? Are people going to say, you know what? We think that Goldman is too much focused on the house.

VELSHI: Hey Matt, was it last summer you wrote a scathing article in "Rolling Stone" about Goldman-Sachs, sort of accusing them of doing all sorts of things. Is that -- is what has happened, these allegations does that sort of underscore what you wrote or is this something entirely different from what you suggested Goldman was up to?

MATT TAIBBI, CONTRIBUTING EDITOR, "ROLLING STONE:" I wrote last summer that Gold man Sachs was shorting subprime housing market at the same time it was unloading that same kind of stuff on its customer. What this case is is actually a little bit worse than that. This sort of accuses them of going out and intentionally gathering up bad subprime investments in order to short them and then unload them on somebody else. But you know, it's essentially the same thing. It's still basically an allegation of securities fraud, because Goldman is trading on the knowledge that its customers didn't have.

ROMANS: You know I talked to an analyst this week. They were very aggressive on the conference call with Goldman-Sachs, earnings. He said there's a lot of blank that went on in the heat, in the peak of the CBO market. He said I'm not quite this is the blankest of all of them. Why did the SEC pick this one? There is a feeling among some that this might be a tough sell for the SEC and Goldman Sachs has said that these are unfounded charges, the CEO has gone on the offensive, talking to clients saying this is politically motivated. Chrystia it's going to be a hard case? FREELAND: Well the SEC has certainly set itself up for a situation in which they can't afford to fail. It's a very high profile case. The SEC announcing to the world that it is prepared to take on the biggest of the big boys. It is also Goldman-Sachs doing that, too. Because Goldman did have an option to settle. And that's what normally happens in these cases. I mean, presumably the calculation in Goldman is that it's such a high-profile case, to settle would be dangerous, but what I think is really interesting about this is the extent to which we are at kind of a cultural watershed, and I think people now are starting to ask in the wake of the financial crises, with this case crystallizing it, what is all of this for? What is the social benefit of these trades? What is the social benefit of this market?

VELSHI: But Chrystia --

FREELAND: That means the longer run --

VELSHI: What's the social benefit of betting that a team is going to lose a game, or going to the casino? The fact is, John Paulson who is the party who allegedly asked Goldman to set these up and pick the mortgages that were designed to fail and shorted them --

ROMANS: Not charged with anything.

VELSHI: He made the right bets.

FREELAND: But the difference is John Paulson can't benefit from cheap debt. John Paulson doesn't get bailed out by the government when he fails. So that's the difference.

TAIBBI: I was going to say. We don't give $4 trillion to a guy who bets on the Diamondbacks to beat the Dodgers. That's not the way it works. The problem is these guys have been massively subsidized by the taxpayer and they are turning around and doing these completely socially non-beneficial trades. I think that's why people have to pay attention to this stuff.

ROMANS: All right. Matt Taibbi thank you so much, also, Chrystia Freeland. Fascinating conversation. This is not the end of the Goldman story by any sort of the imagination. We're going to talk about it next week. Because we are going to meet Fabulous Fab, you know the trader at the heart of it.

FREELAND: And the moral of the story, don't send e-mails.

VELSHI: And if you do, don't call yourself Fabulous Fab.

ROMANS: Oh, man. A total financial meltdown leaving millions of Americans struggling for jobs, trying to repair destroyed nest eggs. Next we are going to examine what must be done to assure another crisis is averted before it's too late.


ROMANS: In the wake of the financial crises, Ali, is this lingering question, did Americans capitalism fail? (BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE U.S: A free market was never meant to be a free license to take whatever you can get, however you can get it. That's what happened too often in the years leading up to this crisis.


VELSHI: Having a discussion on Facebook with somebody who says I seem to be implying that the free market was responsible for making a regular recession into a really big recession and that if it were really free it would be OK.

Let's talk to Matthew Bishop, he is the co-author of a book called "The Road from Ruin" How to revive capitalism and put America back on top. He is also the U.S. business editor with the economists and one of the smartest journalists around. Matt thank you for joining us, we appreciate it. Let's go straight to it. Give me the directions to the road from ruin.

MATTHEW BISHOP, CO-AUTHOR, "THE ROAD FROM RUIN:" Well the book is really about our capitalism failed. When Lehman Brothers went bust and the rest of the financial system went into meltdown, that was clear evidence that we couldn't carry on as before. Capitalism was not supposed to involve the government coming in and bailing out all the bankers.

So in the book we set out an agenda for reforming capitalism so that it can actually work better and serve the public rather than serve a small group of people on Wall Street and we set out a number of ideas, some of which are in of the current regulation and reform bill that Mr. Obama is pushing, but others are not. Which are more fundamental?

ROMANS: What of the president's reforms do you agree with and is in your road map first?

BISHOP: One of the ideas that I like, is this idea to set up a consumer protection agency. I wish it wasn't being set up within the Federal Reserve, I wish was being set up as an independent agency.


BISHOP: Because I think the banking industry did exploit the ignorance of the public and design products that took advantage of people who weren't able to really understand what they were being sold. We do need an agency to protect customers and I think we also do need to make sure that the regulators are able to see what's going on, what sorts of derivatives are being traded by banks. What sort of risks they're taking. It is clear that the regulators failed to do their job properly during the run-up to the meltdown.

VELSHI: Matthew good to talk to you. Thanks so much. Great book, "The Road from Ruin: how to revive capitalism and put America back on top." You know, Christine, a number of people who have criticized the president's financial reform efforts have said that by definition they may actually stop America from being on top. Let's talk about that in a little bit.

But first, we want to show you exactly how you can set yourself up for success in the stock market, which is really where you can play, not in the world of exotic derivatives, but we're going to show you how you can succeed no matter how old you are and which way the market is headed.


ROMANS: How many times have you heard this about money, right? Diversification is the key to weathering uncertain times in the stock market. How you get there? What does it mean to diversify? You may want to take a look at an ETF or they are also known as Exchange Traded Funds from what our next guest says, in simple terms, they have all the benefits of mutual funds, they don't have all the fees that can be associated with them. The big question is how do you build a portfolio that is right for you made out of these ETFs? Let's talk to our resident guru; Mitch Tuchman is the founder and CEO of MarketRiders.

Mitch you say that most people have mutual funds in their retirement accounts, but consider an ETF because you can save a lot of money in the long run. So let's look at someone who is 25 years old.

MITCH TUCHMAN, FOUNDER & CEO, MARKETRIDERS: You know the old expression; don't put all your eggs in one basket. Well what people don't really understand is what are the baskets? So here is six baskets that you should put your money in, you should have U.S. stocks, foreign stocks, REITs. Let's talk about real estate, for example. You can own real estate without ever fixing a toilet in the middle of the night to real estate investment trusts. The REIT allocations for a 25-year-old here is simply buy an ETF called RWR. If you buy RWR, you own 80 of the top real estate companies in America. You own apartment buildings, warehouses, offices, all kinds of things, hotels.

ROMANS: For the overall stock market you point out Vanguard total stock market, VTI, is the one, but that should be the biggest part of your portfolio at this young age. Move, for us into 55. You're 55 years old. The portfolio of a 25-year-old should look different than a 55-year-old for all the obvious reasons. Walk us through 55.

TUCHMAN: We get older; we don't have a strong stomach lining. You know, 2008 was really tough for a 55-year-old but a 25-year-old, it was a lot easier. So when you're 55, you own the same ETFs, Christine, but you just shift the allocations more towards the bonds. So in this allocation, we have a 50 percent bond allocation and et cetera.

If you look at this allocation, maybe BND is the bond that you have and this is 4400 different bonds all in one security issue. We also boot out the commodities. Because commodities tend to go up and down quite a bit and this is more appropriate for a 55-year-old who is looking to getting closer to retirement doesn't want as much volatility in a portfolio.

ROMANS: To bring in another acronym tip, treasury inflation protected securities, but that's something that all should be in an ETF. Say that ten times. Tell us about that one.

TUCHMAN: Yes. Tips are very interesting. People don't fully understand what a tip is, but a tip is a bond. It is a Treasury bond, but it's a little different than a regular bond, because you're making the deal with the government. Basically, people worry when they're on bonds, when we have rampant inflation; they are going to have a lot less money when the bond comes due.

Well with a TIP, you have to deal with the government, and the government basically says we'll make up the difference. It's a Treasury but it's got this inflation protection built in. Very valuable piece of every portfolio and ought to be in an allocation. And so as you get older, you just need to shift these allocations around. Our company has software to do that. But you can get other places to do that. But it's just a matter of shifting allocations based on your age and your tolerance for risk.

ROMANS: And just a reminder for everyone if you want to hear more about those ETFs and do your own research on them, go ahead and go to CNNMONEY, you can put in that ticker and learn more about them.

Ali and I will put them on our Facebook pages, Christineromans@cnn and Alivelshi. We will put them on there so people can see exactly Mitch what you're recommending and whether its right for you I mean it's of course your own personal preference. Mitch Tuchman founder and CEO of MarketRiders in San Francisco. Thank you, Mitch.

TUCHMAN: Thanks, Christine. Appreciate it.

ROMANS: All right. Next, meet America's future financial experts.


UNIDENTIFIED FEMALE: I have to look out for the dividends.

UNIDENTIFIED FEMALE: I like checking the Dow.

UNIDENTIFIED FEMALE: My favorite stock laps to be Apple.


ROMANS: And Apple has been good to her. That little girl has made a killing on Apple. The fundamentals of finance is start them young at this school in Chicago and they learn using real money, a lot of money, $20,000 per class. The details next.

(COMMERCIAL BREAK) ROMANS: So, Ali, my four-year-old he wants a new train. I said, I don't have the money right now. He said, well mommy, let's go to the grocery store and buy some.

VELSHI: Buy money. That's a good one.

ROMANS: Apparently that's where he thinks money comes from. So I need to start working on the money question already at four years old. Ali when did you first learn about money?

VELSHI: Well, I started investing at a very young age. I think I was 11 years old when I bought a stock, which I really liked. But as you and I have discussed, I'm not sure I ever learned the other side about money. I'm not the best saver in the entire world. So I learned how to spend and I learned how to invest. I didn't learn the saving part all that early.

ROMANS: I have this image of Alex P. Keaton and Ali Velshi.

VELSHI: I was introduced to the stock market early.

ROMANS: Well how many people do you think learn about personal finance at school?

VELSHI: As a percentage?

ROMANS: As a percentage. Give me a guess.

VELSHI: I would think about 20 percent.

ROMANS: It is much lower than that really. The roman numeral, believe it or not this week, 6 percent. Six percent of people say, Ali that they learned about personal finance in school. Only 6 percent that is according to a recent survey by the National Foundation for Credit Counseling, and that many people say is a problem with financial literacy in this country.

Six percent learning it in school. Suddenly you are going out with student loans, you are going to have a job, you are going to have to manage your paycheck and you are going to have to buy a car. One school on Chicago's south side is trying to change all this. Take a look.


ROMANS (voice over): Meet America's future investment bankers and accountants.

UNIDENTIFIED FEMALE: We have to look out for the dividends.

UNIDENTIFIED FEMALE: I like checking the Dow.

UNIDENTIFIED FEMALE: My favorite stock would have to be Apple.

ROMANS: At Ariel Academy, students learn how to make money.

UNIDENTIFIED FEMALE: It helps the business.

ROMANS: Save money.

UNIDENTIFIED FEMALE: I think everybody should at least save half of their money.

UNIDENTIFIED FEMALE: Don't forget your decimal.

ROMANS: And invest money, real money. Thanks to the school's unique saving and investment curriculum.

CONNIE MORAN, DIRECTOR, ARIEL INVESTMENT CURRCULIUM: The incoming first grade class gets a $20,000 endowment when they get to fifth grade we'll start to choose stocks that they think we should be buying. And we will buy them.

UNIDENTIFIED FEMALE: $57.58 and the dividend is 14 cents per share.


ROMANS: When students graduate from eighth grade, the $20,000 goes back to the incoming first grade. And any profit above that amount gets split. Half goes to improving the school or to charity. The other half gets divided among the kids.

UNIDENTIFIED FEMALE: I'm going to invest in that.

ROMANS: Of course some years, like 2009, there's no profit and the kids learn that investing is no slam dunk. But that doesn't deter kids like Ariel graduate Mario and Myles Gage.

MARIO GAGE, ARIEL ACADEMY GRADUATE: I have my own portfolio and it is just really amazing. I'm able to take everything that I learned at Ariel to the next level.

ROMANS: Myles and Mario weren't the only ones in the family getting an education.

MICHELLE GAGE, MOTHER OF ARIEL ACADEMY GRADUATES: I started looking over some of the materials that they were bringing home. It was still a little foreign to me, but then they kind of broke it down like children do and I started getting a little excited about that and the knowledge and I'm like, wow. You know what? This is fun.

ROMANS: Fun and finance don't often appear in the same sentence. But that's not true at Ariel. From age-appropriate learning to an inspirational environment and the ultimate reward, attending McDonald's annual shareholder meeting, making this all possible is John Rogers, chairman and founder of Ariel Investments after which the school is named.

Ariel along with partner Newvine Investments put up the $20,000 for each grade. In 1991 Ariel started working with this public school on the south side of Chicago, because it was one of the most underserved in the city. Ninety eight percent of the student body is African-American, 78 percent are considered low income. Nowadays, test scores are on the rise. Outperforming the district and the state average with the help of teachers like Connie Moran.

MORAN: Good morning.

ROMANS: Named teacher of the year by the National Foundation for Teaching Entrepreneurship in 2007.

UNIDENTIFIED FEMALE: Ever since I listened to Ms. Moran in class I heard her say invest in your money, invest your money and now I'm going to listen to her.


ROMANS: These kids are awesome. Students can opt to get their profit in cash on graduation day, Ali or they can put it in a 529 college savings plan. In which case Ariel kicks in an additional $1,000 reward.

VELSHI: That in itself is a lesson. If you don't take the cash, you have to think about the future. Put it in a 529. By the way there's so many options with that 529.

ROMANS: Totally.

VELSHI: You can invest in somebody else's state, but if you invest in yours, you might get the tax deduction.

ROMANS: You would be interested to know too that the majority of the kids do they take the money or do they take the 529 investment? They do the investment.

VELSHI: Great.

ROMANS: So the kids have learned as they've gone through that money's going to grow. They are starting to learn about compound interest. The more time they have the better it will be for them. If you're not lucky enough to have Ariel in your neighborhood, how do you make sure your kids can still learn all these money lessons? That is a good question because they really are the exception, not the rule.

VELSHI: Well our good friend Janet Bodnar joins us again; she is the editor of Kiplinger's Personal Finance and an authority on raising money smart kids. Janet thank you for being with us. Obviously this is not the lengthy lesson that we can, we'd love to give so many more of America's kids, but what would you say that parents who are watching us should focus on?

JANET BODNAR, EDITOR, KIPLINGER'S PERSONAL FINANCE: Well, as you were mentioning earlier, those teachable moments, even when your 4- year-old, Christine, is asking where the money comes from, you buy it at the grocery store. You know little lesson about how that's not exactly how it works. The bank is the big piggy bank for mom and dad. We need to put money in the bank just like you do. Sometimes the bank is empty, just like yours is, very good lessons. ROMANS: One thing I think is important in the recording of this piece that my producer and I learned was that most parents said that they were learning from their kids. I mean, in some cases, there are a lot of parents who aren't equipped to teach their kids some of these things. For parents who are listening and trying to figure how to teach your kids this stuff, let's start with the preschool age, kids and money. I mean I guess that's my 4-year-old, who thinks we can buy cookies, ice cream, yogurt and money at the grocery store. What do I need to do?

BODNAR: Well, first of all, you have to remember, as you said before, age-appropriate, it has to be very concrete. Actually, I write frequently, at, our website about a column for kids and money especially for parents. But for younger kids you have to remember concrete, think piggy banks, and think putting money in a vending machine and getting something out the bottom, that sort of thing.

Anything that you can do to differentiate between coins. And then as kids get older, as they get into the elementary school years or the middle school years, they should certainly be getting some kind of allowance or some kind of fixed income of their own that teaches them how to make choices. You're not talking about plastic --

VELSHI: Let's talk about that for a second, Janet because this is always a question. First of all, there is a question about do you give an allowance just because you are or do you get the allowance because you work, that you should be otherwise be doing some parents say for free. And then secondly when you get that allowance, do you teach the kid to take a piece of savings out of that or to --

BODNAR: Right.

VELSHI: Do charity from that or is that their money to blow on whatever they want?

BODNAR: Well here's my theory, Ali, this is from years of writing about kids and money for Kiplinger. You really need to give them the opportunity to make their own choices and to give them financial responsibility. Financial jobs, if you will. So that, you know, they're certainly going to be -- I think they should do many things around the house simply because they're part of the family and you shouldn't be paying them for chores that they should be doing on their own, but the money shouldn't come with strings that are not attached.

There should be strings and those would be financial strings. So they have certain responsibilities, they have certain choices that they want to make. Then, they need to -- they can earn additional monies attached to additional jobs that they would do around the house that you would consider over and above the basics.

ROMANS: Janet thank you so much. She is the author of "Raising Money Smart Kids," Kiplinger's personal finance editor, Janet Bodnar.

VELSHI: Is it too late for me to read that Christine? ROMANS: No you can read it.

Raising money smart young adults, very young adults, Ali, bald young adults.

VELSHI: Janet good to see you.

ROMANS: Some positive news from automakers this week. Is it a sign the industry has turned the corner or is this just a media hype?


ROMANS: All right. Time now for reality bites. Our reality check of some of the bite-sized stories out there. Our good friend Richard Quest host of CNI "Quest Means Business" is stuck with me here in New York due to of all things, volcanic ash.

VELSHI: I thought that was over.

ROMANS: Yes, I know. No it is not. I think maybe he's just trying to stay in New York a little bit longer just to entertain us, Ali.

VELSHI: And even staying at my place I offered him.

RICHARD QUEST, CNI HOST, "QUEST MEANS BUSINESS:" I'm waiting for the bill, no doubt. Actually, actually I'm going back this weekend.

ROMANS: Ali doesn't have any furniture in that place because I took the last of it.

VELSHI: There you go.

ROMANS: So there is nothing to sleep on at Ali's house.

All right. Some good headlines for you this week, I want to I want to get your opinion on gentleman, the auto industry. Chrysler posting its first quarterly profit since its bankruptcy last year. GM repaid its bailout loan $6.7 billion in full and ahead of schedule. Now to be fair, there is some $50 billion in federal health overall, but paid back that $6.7 billion. Are these real signs automakers have turned the corner Richard or are we making a little bit too much of this?

QUEST: You can pretty much say its good evidence that the system worked. Now, we can argue whether they should be bailed out or shouldn't be bailed out, but the fact is they were bailed out and now you're starting to see the benefits of that program. There will be something horrific if they weren't showing profits by now. There will be something awful if they weren't able to start repaying some of the money. That would be the tantamount of failure of the policy. I think this is a good indication that rightly or wrongly, the bailout has worked.

ROMANS: Ali, a year ago I wouldn't even imagine we would be doing this, you know? VELSHI: Yes, I have to say I think there is a few things at play. I think Richard is right, a couple of things at play. One is they kind of have. They hit bottom. Number two, we did have cash for clunkers which should of at least got some inventory moving and got them back in the business of selling cars. Number three, we are all feeling a little bit better, so people are actually buying those cars, people who think that they might still have a job. Because job losses started to be stemmed, so I think the system worked, I think the economy is doing better and I think generally speaking, this could have gone the other way.

QUEST: Don't forget one other point. Their cost base has dramatically been reduced as a result of it. If you can't make money after you've been through the process that was rammed through as fast as possible, then really, you shouldn't be in business at all. For those who believe in Chapter 11and bailouts, this is the evidence that it worked, but still early days.

ROMANS: All right gentlemen, still early days. And we have another story that we are going to follow for you as well. An oil rig explodes and sinks in the Gulf of Mexico. What it means for the environment, for America's crude addiction and the president's plan to drill even more.

But first, if you back up your business plan with shall we say passion you're more likely to succeed. In this week's "Turnaround" a Manhattan deejay school encourages its students to follow their dreams.


UNIDENTIFIED MALE: Time to get down.

When we opened, it was just like inviting friends and family. There's really no source of income for the first eight months or so. So at that point, slowly but surely, we started getting enrollments and we were able to kind of use that as working capital. Once you have those few months of consistent growth, then I think maybe this is going to continue.

UNIDENTIFIED MALE: Try to imitate that.

DAN GIOVE, CEO & FOUNDER, DUBSPORT: Maybe I can hire somebody to do one of these many jobs that a few of us are doing.

UNIDENTIFIED MALE: Right click on the whole thing.

GIOVE: So once bigger payroll came into the equation, it made things a lot more stressful. Because Monday would come and we're like payroll is Friday. Where do we get the money for payroll? There is no worst stress than that for a business owner.

It came to the point where I had to let those people go. So trying to grow and hiring staff, it's tricky. We work with a lot of manufacturers that make this gear, make this software. All these companies need instructional material. So that is something we were able to do and to provide for them. We also parted with students. We found out what skill they had and where we might be able to fit them in.

My best advice, I can't emphasize it enough, is that you need to spend time deciding not only a business plan, but this plan of your website. Essentially, that is your road map that is your guide. That is what is going to drive your business, especially doing commerce online. So yes definitely looking to expand.

We are going to take another floor in the building and also looking to open in a few other cities around the U.S. The plan is in motion.

UNIDENTIFIED MALE: The revolution.



ROMANS: All right. Back now with our good friend Richard Quest and of course Ali Velshi. Ali, you've been covering this as it was breaking late this week. An oil rig sinks in the Gulf of Mexico, 11 men missing. Still a search and rescue, but over the weekend it's going to be very critical for these men and these families. That is the burning platform and then it sank, Ali. You know, one of the things we talk about as we move forward on this story is this is an amazing example of a high tech search for very low-tech energy. It comes close on the heels of when the president announced and recently endorsed more drilling.

VELSHI: Offshore.

ROMANS: There are political ramifications of this, too, right?

VELSHI: Yes, this is a big deal. Oil, we recently seen a mine disaster, the bottom line is we use a lot of oil. We use a lot of coal. You actually were drilling down and looking at some of the numbers, the percentage of the energy that we consume that comes from these things.

ROMANS: Yes and if you look, you can see petroleum is what powers this economy. Natural gas, the second most common energy source in this country, coal 23 percent and then look, nuclear 9 percent renewable, 7 percent. It just shows you that of everything we talk about, Richard, our economic recovery is powered by very old technology and is the cheapest technology.

QUEST: It also tells us that life is not risk-free. To get the economic growth we all seek, there are men and women who have to put their lives on the line to do so. From the comfort of your living room when you switch the lights on, there is somebody who had to --

ROMANS: In West Virginia.

QUEST: Down in West Virginia. When you start your motor vehicle and the petroleum sparks up, somebody had to be on an oil rig. Why do I say that? I say it because it sounds so obvious. These events remind us what the economic and the real human life cost can be to make the whole thing work.

ROMANS: As you look at those pictures and we hear more about that oil rig, it's just fascinating. Just a fascinating look at what it takes to get this country and the world going.

QUEST: There is one point that I would make which I find quite extraordinary. Barely has the rig had the fire out and the first lawsuit has already been filed. I'm not suggesting for a moment there won't ultimately be lawsuits, but if you're talking about legal and torte reform in this country, how on earth any lawyer can file a lawsuit before the thing --

VELSHI: Before there is any investigation.

QUEST: Absolutely.

VELSHI: That occurred to me, too. That is an interesting point.

QUEST: That is where your premiums are going.

ROMANS: All right. Gentlemen, thank you very much, Richard Quest and Ali Velshi. Thanks for joining us on YOUR MONEY. You can join the running twitter conversation of Facebook, we are going to give you all of those ETFs that Tuchman dropped by. I'm at Christineromans, Ali is at Alivelshi.

VELSHI: Tell Richard to make sure my apartment isn't a mess. Make sure you join us every week for YOUR MONEY. Have a great weekend.