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Massive Financial Overhaul Headed to President Obama's Desk; Unlocking the Mystery of Your Credit Score; Many Americans Do Not Approve of President Obama's Way of Handling the Economy

Aired July 18, 2010 - 15:00   ET

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

JESSICA YELLIN, CNN HOST: Welcome to YOUR MONEY. I'm Jessica Yellin in Washington. Ali Velshi and Christine Romans are off this week.

A massive financial overhaul is headed to President Obama's desk. And here is what you need to know about it. The bill places a heavy emphasis on consumer protection establishing an agency that aims to crack down on unfair practices by lenders and credit card companies. It also hopes to demystify the credit score.

As for Wall Street, the federal government can now take over huge failing firms and wind them down. The goal here is to end too big to fail. And the riskiest gambles that lead to the collapse known as derivative will now mostly be regulated. Still this bill is not without its detractors with just three Republicans Senators among those that voted in favor of it.

Joining me now to discuss it all is Raj Date, chairman and executive director of Cambridge Winter Inc. and Stephen Moore, editorial writer with the "Wall Street Journal." And Stephen I just want to start with you, they claim that this bill is the most massive reform of Wall Street since the great depression. Would this have prevented the financial collapse?

STEPHEN MOORE, EDITORAL WRITER, "WALL STREET JOURNAL:" Oh, I don't believe it would. But it is massive, its 2300 pages and I don't think many of these members actually read it. I think one of my big concerns is that this whole issue that you brought up about too big to fail, I think a lot of people are wondering are we going to have another scenario in two or five or ten years where we have to bail out banks again.

And that's the thing that's most unpopular with the public right now is this idea that we're going to have to continue to bail out big banks and big investment firms. I don't think it does anything to prevent bail outs in the future.

YELLIN: OK, Raj I want you to listen to this from the minority in the leader in the house, John Boehner, who is no fan of this bill.

(BEGIN VIDEO CLIP)

REP. JOHN BOEHNER, (R) MINORITY LEADER: I think the financial reform bill is ill conceived. I think it will make credit harder for the American people to get, clearly harder for businesses to get. And the fact that it's going to punish every banker in America for the sins of a few on Wall Street. I think it's unwise.

(END VIDEO CLIP)

YELLIN: Now Raj you said this bill's not perfect, but in your view what are it strongest points?

RAJ DATE, CHAIRMAN EXE. DIRECTOR, CAMBRIDGE WINTER INC:" Well the strongest points relate to how it is that we went so far awry during the credit bubble. We were instead of allocating our collective savings to productive commercial enterprises across the country, instead we ended up with a $7 trillion or $8 trillion bubble. That is a bad outcome and one that has to be fixed.

There are two big things that actually go to the heart of that. One is to have a real live attentive consumer regulator who if anyone had been paying attention on this subject would have stopped some of the exotic mortgage products as they became prevalent in 2004 and 2006.

The second big issue is we've eliminated some of the regulatory arbitrage opportunities. That is to say if you allow a bank to just sort of choose his own regulator, you're asking for trouble. And those two things are a lot better off now than before.

MOORE: I agree with what you said. I have two problems, though, kind of oversights on this bill. One is I think we might both agree that the credit rating agencies, which were driving these AAA bond ratings on these exotic mortgages, how in the world can those credit rating agencies even stay in business? And there's not much in this bill dealing with credit rating agency reform.

YELLIN: It's up to regulators to decide how much these credit rating agencies should be changed?

MOORE: The problem is that the credit rating agencies I think were at the center of this storm and I don't think there's enough oversight and regulation of the credit rating agencies.

YELLIN: And they judge the worthiness.

MOORE: That's right. They were giving AAA bond ratings to these exotic mortgage securities that the subprime loans that were junk loans. So that was a big problem. And the other was Fannie Mae and Freddie Mac which are the big governmental institutions that were providing 100 percent taxpayer guarantees on these mortgages. There's nothing in this bill that deals with those.

YELLIN: Capitol Hill says they'll to that next, but we'll see. Raj, let's go through the bill. Who are the biggest winners or what are the biggest wins here for first consumers?

DATE: Well consumers are quite a bit better off. And the reason for that is over time, consumer finance has been a classic race to the bottom business when it comes to practices. As someone who wants to compete with sort of honest and transparent practices, competing against people with shady and not a transparent practices, there's no way to win. And as a result everyone keeps perpetuating a carnival of bad acts. Having a real live regulator in place paying attention will help quite a bit.

YELLIN: And how about for financial firms?

DATE: For financial firms, it's a bit of a mixed bag. I'll focus on community banks in particular. Because I suspect community banks right now probably are feeling pretty good about the fact that it seems that rammed the table in terms of the legislative agenda, they have some capital relief that others don't have, they have assessment relief.

And there are a number of other special carve outs for small banks. But I assure you that the long term problem for small banks still exist, small banks are going extinct and nothing in the bill particularly fixes that.

YELLIN: I know there are a lot of people who say this bill is closing the barn door after the horse is out. Fixing the last crisis instead the of the next one. There is another way that the administration is trying to change practices and that's through the SEC The SEC had this case against Goldman Sachs, they have now settled for the largest settlement a financial firm has ever paid, but I understand it is only two weeks of profits for Goldman.

Steve is ...

MOORE: About $500 million that is a pretty good chunk of change. But I think really what happened here was that Goldman did have the gun to their head. And basically the SEC said you have to pay this money and you have to say you're sorry and that is what they did.

And one of the reasons, I talked to some of the people at Goldman and they said look we still don't really think that we were guilty of any criminal charges here, but they thought that the legal costs of going forward with this case would have probably been more expensive than just to settle.

YELLIN: And probably public relations damages, too.

MOORE: Absolutely.

YELLIN: Now does it send any kind of message to Wall Street the fact that the SEC exacted this from Goldman? Will people learn lessons from it?

DATE: I think senior leadership will, but unfortunately on Wall Street there's a bit of tendency, senior executives to turn over the reigns of client management and trading book decisions to people who are between 25 and 35 years old and making $1 million to $2 million in cash every year.

It's very difficult to get such people to behave ethically over time. This is a real problem. And one that probably didn't exist quite as badly 20 years ago and one that the industry unfortunately is going to have to figure out how to solve by itself.

YELLIN: One of the problems is that they say the people in government can never be as up to speed as the people in industry are and so they're always behind the curve.

MOORE: That is so true. Let's take derivatives. I don't even think most members of Congress even know what a derivative is. And my point on this was wait a minute; the banks didn't lose their money on the derivatives. They lost their money on the mortgage -- those mortgages, those subprime mortgages, so I agree with you; sometimes we deal with the last crisis, not the one that is ahead of us. I think this is a good example of that.

YELLIN: What do we need next? What reform?

DATE: The way in which the financial system prices risk. Really comes down to the debt market, the debt markets did a terrible job of pricing risk in the bubble. There are three reasons.

YELLIN: What does it mean to regulate this?

DATE: The financial system borrows money in order to lend it to you and me. That money has to come from somewhere, it comes from fixed income from investors worldwide. But those fixed income investors during the course of the last decades made terrible judgments about risk in the system and, therefore, charged it too little for it. Now, why?

There are three big reasons. The bill solves one, leaves the other two kind of to be solved later. One is the fact that derivative exposures were OK; it was hard as an investor to get a sense of how much risk any given firm has taken. That's addressed in the bill I think quite reasonably to an extent. But rating agencies are still a proxy for way too much decision making in this market and Fannie and Freddie are the largest-of-

MOORE: Then you're not going to have the oversight of the banks because they figure if we lose money, the taxpayers are going to pay for it.

YELLIN: And we look forward to having you guys back on when we get to Fannie and Freddie some day. Thanks to both of you Raj and Steve.

Do you know your financial DNA? It's a three digit number that can determine whether you get a mortgage, a car loan, even a job. Next we unlock the mystery of your credit score.

(COMMERCIAL BREAK)

YELLIN: 599 that is not a good number if you're trying to get a loan or a credit card. But for 43 million Americans, whose score is 599 or less, guess what? There is now change underway. The new financial reform bill will allow anyone who is turned down because of a low credit score to at least be able to see their score. Lynnette Khalfani-Cox is the author of "Perfect Credit, Seven Steps to a Great Credit Rating." I could use your help. And Ed Mierzwinski is the consumer program director at the U.S. Public Interest Research Group. OK, Ed let me start with you. This new Wall Street reform bill actually helps people access their credit scores more easily. How much does it help consumers and in what other ways?

ED MIERZWINSKI, CONSUMER PROGRAM DIR., U.S. PUBLIC INTEREST RESEARCH GROUP: Well the bill is first of all a landmark reform because it creates a new consumer financial protection bureau this is the biggest reform since deposit insurance in 1933.

But getting access to your credit scores is part of it, but the bureau is an entire new consumer protection machine that will have the authority to regulate every financial product sold by a bank or a nonbank, a payday lender whomever. So it's a very big victory for consumers.

YELLIN: It's a big change, but Lynnette, I'm curious your take. Is this credit score system broken? I'm astounded that I can't figure out why my score is the way it is. I have three very different scores. And it's all done in a black box.

LYNNETTE KHALFANI-COX, PERSONAL FINANCE AUTHOR: Yes, a lot of people have made that criticism and said that the credit scoring system is broken. But I think really the criticism is based on a lot of misunderstandings about how credit scoring works. First of all, some people have different credit scores because your credit scores are based on the underlying information that's contained in three different credit reports.

Then this are multiple forms of credit scores. The most popular one is the fico credit score. But there's also an Experian plus score, there is a vantage score. So sometimes when consumers are looking at these they get confused because they may not be the same score that a lender is looking at, for example.

YELLIN: OK. But let me ask you, the credit score is used not just to determine if you can get a car loan, but some people who apply to college, the admissions people look at it. If you are getting a job, sometimes employers look it. It has enormous power over your life, but the consumers have very little say. And I'm wondering could this financial reform have done more to help the consumer?

MIERZWINSKI: Well I think the new financial reform bill is creating this new consumer financial production bureau, if for the first time it may be an agency that looks under the hood, that looks in to the black box.

YELLIN: Maybe, it's up to the regulators to decide that.

MIERZWINSKI: It is up to the regulators as are a lot of things in the new law. But for the first time we have a regulator that has only one job of protecting you and me.

YELLIN: And that is a big step forward in your view? MIERZWINSKI: Absolutely.

YELLIN: Lynnette your take, why has government been reluctant to date to regulate these companies that give us our credit scores?

KHALFANI-COX: Well I think one thing is that they've been reluctant to interfere with commerce. They haven't wanted to take part in any action that might be seen as diminishing a company's ability to make profits. And lets be real it's only been the last less than a decade since 2001 that consumers were allowed to get a peek at their credit scores at all.

And that took a lot of pressure on the part of consumer advocates to say at least let us see the score. Because companies like Fair Isaac, which is the creator of the fico score, for example, they said this is proprietary information.

Our credit scoring models and the logistical work and behind the scenes work that we do to create that three digit fico score that's our own proprietary data and information. So I think government just sort of hasn't wanted to get involved in that way.

But one of the things that I predict even though you will be allowed to get a score free of charge if you get turned down say for a loan or if you get higher rates on your insurance than you would have gotten if you had had a higher credit score, I think that in the future we will see a time when consumers will get completely free credit scores.

There's already some companies out there that are doing this, and competitive forces if not regulatory and political forces, competitive business forces will bring this information to consumers ultimately.

YELLIN: All right, Lynnette that would be great for the consumers if we get to that point. Thanks so much for joining us, Lynnette, Ed.

All right. From businesses to voters, President Obama has a big problem. What, if anything, does he plan to do about it? That's next.

(COMMERCIAL BREAK)

YELLIN: Welcome back to YOUR MONEY. I'm joined here in Washington by CNN senior political analyst Gloria Borger. Gloria welcome. First of all, I want to start with the voters. A recent "Washington Post" ABC News poll found that just 43 percent of Americans approve of the way President Obama is handling the economy.

Back on June 6th, that number was 50 percent which means it's a pretty step 7 percent drop in just one month. We have been talking about this number all week. Usually we're on to a new story, but this really seems to be sticking to the president.

GLORIA BORGER, CNN SENIOR POLITICAL ANALYST: The defining issue right now for Barack Obama is how he handles the economy, what happens to unemployment. People see that he's trying to do a whole bunch of different things. And what they're going to define him by come his re- election and also the Democrats in the midterm elections is how they feel about the direction of the country, how they feel about their own personal economic situation, and right now, they're giving him terrible grades.

The worst thing for him quite frankly is the spending right now. People are worried about spending in that same "Washington Post" poll, 56 percent of the voters disapproved of the way the president is handling the deficit.

YELLIN: Let's get to that in a minute because we'll talk about the fiscal commission. I want to ask you about something the president said in an NBC interview. He told Chuck Todd that he believes people are going to remember when they go to the polls in November, that he inherited a terrible economy so it's really not basically his fault. True?

BORGER: Well that's what he would like. He wants to make sure -- he said, look, I take responsibility going forward for what we did with the stimulus package, what we did with the bailout, what we did for the car companies and all the rest. But remember that this did not occur in a vacuum.

But I think when we look back on the first couple years on the Obama presidency, he had a choice. He had the agenda he was given by necessity, which was all of these cries cease crises, and then he had the agenda he chose, which was health care reform, for example. Now he is going to try to get an energy bill through, financial regulation. And he didn't have to do all of that. And I think we're going to be able to see whether that was wise or unwise.

YELLIN: He'll be judged for it one way or another.

BORGER: Exactly.

YELLIN: So there is another group of people who is unhappy with the agenda he chose to use your words. The president this week was slammed by many business groups. The Chamber of Commerce accused President Obama of, quote, dropping the ball when it comes to economic policy. And then also this week, the president opted for a, quote, quiet meeting although the photo-op was released with Warren Buffett. I mean, obviously ...

BORGER: The oracle.

YELLIN: Is this president anti-business as his critics say?

BORGER: Well, you know it depends with whom you speak, right? If you talk to lots of business folk, they say what we crave is a more stable environment. And because Barack Obama has such an ambitious agenda, it's not stable. But Wall Street reform makes it clear.

Well that's what the folks at the White House say, they say, OK, if you want to know how you're going to be regulated, you just found out and here are the rules of the road and now you are going to have to abide by them. If you talk to business, business will say, and you know this better than I do Jess, if you talk to businesses, business will say, you know what this is going to cripple us this kind of regulation.

YELLIN: Too much bureaucracy. Does it matter if business leaders are angry with him?

BORGER: Yes. Well, it does if he wants to raise money for his next --

YELLIN: Is it just money?

BORGER: I think in the end it will hurt him with some independent-leaning Republican voters. But the problem for President Obama right now is that lots of the things he's done, particularly in the area of health care reform and financial regulation, those things don't kick in until a year or two, three years from now.

So the public may not see the result and then Wall Street griping may fall on their ears and they'll say maybe they've got a point there. However, if you're a Democrat and you want to be on the side of Wall Street or you want to be on the side of Main Street, I think you're going to choose Main Street.

YELLIN: The final topic is something most voters as you point out really care about, to cut or to spend. Erskine Bowles is the co- chair of the National Commission on Fiscal Responsibility and Reform, that choice seems very clear.

(BEGIN VIDEO CLIP)

ERSKINE B. BOWLES, CO-CHAIR, NAT. COMMISSION OF FISCAL RESPONSIBILITY & REFORM: This debt is like a cancer. It is truly going to destroy the country from within. That is a formula for disaster.

(END VIDEO CLIP)

YELLIN: He's talking about the deficit and all the spending. The president definitely wants to bring down the deficit; he said his goal is to cut it by 2013. There are those who warn that we need to do even more, that he needs to cut now. And then there are the people who want him to spend on the stimulus. Can he win this fight?

BORGER: Well, it's really tough. What he has to do is big things. They have to do big things. And given the fact that there's no bipartisanship in Washington, it's very difficult to see how they do it. Social Security is sitting out there like the elephant on the table. Medicare is sitting out there like the elephant on the table.

YELLIN: Can this one issue take him?

BORGER: The deficit? Certainly right now it's not going to help Democrats in the midterms. Let's see where they are in 2012. Let's see whether the commission makes any progress on the issue of Social Security, raising the retirement age. All kinds of issues are sitting out there and the president tried to put a freeze on discretionary spending which go is such a small percentage of the budget because the big things are military spending and entitlement spending, the automatic programs such as Social Security.

And that -- so that is the huge issue out there, I think the secret plan or not so secret plan is we're in a ditch when it comes to the deficit. Congress is a crisis activated institution. But would they act before a presidential election to fix Social Security? Don't know.

YELLIN: Thank you Gloria. And next up immigration, it is one of hottest and most controversial topics out there right now. Could amnesty actually be the answer to boosting the economy?

(COMMERCIAL BREAK)

YELLIN: A controversial UCLA study suggests that legalizing millions of undocumented immigrants could bring $1.5 trillion to the economy and could help generate up to 900,000 jobs. Clarissa Martinez is director of Immigration and National Campaigns for La (ph), and Mark Krikorian is executive director for the Center for Immigration Studies.

Mark, I want to start with you. Advocates of amnesty say legalizing these undocumented workers could not only drive up tax revenue, but expand our economy and stimulate more growth. Do you buy it?

MARK KRIKORIAN, EXEC. DIR., CENTER FOR IMMIGRATION STUDIES: All those things have a grain of truth to it but is hugely exaggerated. There's no question that legalizing illegal immigrants would make their income go up a little bit and their tax payments go up a little bit. That's actually almost certainly true. But it's not very much.

And it's offset by the fact that once illegal immigrants are legalized, their use of government services, their use of taxpayer funds explodes, because they're now eligible for things. We've actually estimated that the cost at the federal level to taxpayers, federal taxes and federal services, would triple once illegal immigrants were legalized.

YELLIN: Clarissa there's a belief that immigrants will take jobs from hard working Americans who would want them and that they don't really stimulate economic growth in any way. Is that an accurate description?

CLARISSA MARTINEZ, DIR. OF IMMIGRATION NAT. CAMPAIGNS: I think it's inaccurate. If you look simply as most economic studies on the issue, you'll see most economists say immigrants are a benefit to the economy. The way our economy works is that normally immigrants come to occupy jobs in the low skill sector and in the high skill sector. Most Americans congregate around the middle.

But we have an economy that needs people at all those sectors and at all those levels. The question we have right now is that supply and demand when jobs were available, workers were finding them, but because we had a legal immigration system that wasn't working very well they were finding each other outside of the system. That is what lead to the population that we have in the country illegally right now.

What I think we should do is frankly put a solution forward where those folks are going to be playing by the same rules as everybody else, those folks were here illegally, contributing to the economy and, therefore, leading to the contributions that that study shows.

YELLIN: You brought up the point that they would be paying more tax revenue; it just doesn't match the amount of services they'll use. This UCLA study also shows that reforming immigration could generate between $4.5 billion and $5.4 billion in tax revenue. So if they're already here, why not let them pay?

KRIKORIAN: Well there is a couple of things; illegal immigrants are already paying taxes. It's just that they're paying relatively small amounts.

YELLIN: That's because why?

KRIKORIAN: Through sales taxes, property taxes.

YELLIN: And we're talking about an income tax.

KRIKORIAN: A lot of them are actually even paying some of that because most illegal immigrants were on the books, it is just they lied to their employers about their identity. The thing that when you legalize them, their tax payments like I said do go up somewhat. Not a lot, but they do go up some.

Their use of government services now that they are legal immigrants goes way higher and the reason for that is that the problem illegal immigrants have in the labor market is a problem they create for a modern economy like ours is not so much the illegality; it's that they're very low skilled workers.

Modern post industrial economy like ours does not benefit from having lots of high school dropouts. If we wanted that, our schools are really good at turning out high school dropouts. We'll just create more of our own high school dropouts.

YELLIN: OK. I saw you smile at that, why are you shaking your head?

MARTINEZ: Well, I just find it really interesting because I think a lot of Mark's work has been in trying to prevent the pop -- making a lot of these arguments about the drain that people illegally in the country make.

Now he's arguing that if we legalize them, then it's a bigger problem. At the end of the day, frankly, Mark, I mean most of what you oppose is immigration. And I think if you look at what economists say, if you look at the nature of our global world, if we close our doors, whether it is for the folks that there will be demand for in the low skill sector or frankly for the talent we need to supplement our competitive edge in the high skill sector.

We are setting ourselves up, right now we are in an economic recession, and it is the perfect time to figure out what kind of system we need so that immigration happens in a regulated way that benefits U.S. workers.

YELLIN: How much should the economy factor in this debate?

KRIKORIAN: It clearly has to be one of the aspects but immigration has a lot of different angels to it, security, economy, government services, and actually they're all just different parts of the same problem. Mass immigration is incompatible with a modern society.

YELLIN: And your response.

MARTINEZ: Mark and the groups he is associated with actually support, it not only is going to cost us billions of dollars, and it is going to impact the economy. Immigration absolutely is part of having a competitive economy. The question is can we get immigration reform done so we have a system that is working and feeding legality as opposed to a black market which is what we have now and, frankly, what a lot of your proposals are keeping.

YELLIN: OK, Clarissa Martinez we're going to have to leave it there, but thank you.

KRIKORIAN: Thank you.

MARTINEZ: Thank you.

YELLIN: There is a growing threat to this country and it comes from China. Why should you be worried about it? Next.

(COMMERCIAL BREAK)

YELLIN: The trade deficit is growing and the culprit once again is China. Simply put Americans consume more than we produce. One major reason China produces goods at a fraction of the price that we can here in the U.S. In part because of the way it values its currency. Peter Morici is an economist and professor at the University Of Maryland School Of Business. Peter lets get right to it. You say that we either get China to play fair or we're headed for a depression.

PETER MORICI, ECONOMIST: Absolutely. If China doesn't play fair, there's just not a demand for what Americans make. To create jobs businesses need customers and capital. The customer side, there's just not enough demand for what Americans make because we spend so much in China.

And it is not just that it is cheap labor, it undervalues its currency by 40 or 50 percent that is an enormous drain of the U.S. economy. Either we're going to grow very slowly or we're going to tank. But we're not going to recover quickly enough to generate enough jobs to get much below 9 percent unemployment.

YELLIN: All right. For another take on this, let's turn to Richard Quest who is host of CNNI's "Quest means Business." Richard your take, last year the U.S. trade and balance with China was $227 billion. That sounds like a gap we need to close, but China produces goods a lot more cheaply which means folks like me and everyone else in America get to pay less for things. So what's wrong with that?

RICHARD QUEST, CNN INTERNATIONAL HOST, "QUEST MEANS BUSINESS:" Jessica, it's very simple. The day you are prepared to pay more for the t-shirt on your back and the shoes on your feet, that's the day that they will be produced domestically once again. Peter may be right that there is an imbalance in the U.S./China relationship, but there's not a lot the U.S. can do about it as long as it keeps sucking in those imports.

It is changing, yes, I agree we had a very small revaluation of the Chinese currency as a political sop to the G-20, but China is determined to increase its domestic demand in a way that Japan was never prepared to do so. So I think it's a wheel that will turn, it will turn slowly, and I suspect not fast enough for my good friend Peter.

YELLIN: So Peter your take on this. If President Obama does get tough on China, is Richard right that just means folks in the U.S. will be paying more for goods?

MORICI: You would pay more for certain things. However, remember it only works for you if you get to keep your job. Free trade is great if you get to move workers when they lose their job to imports to something else. We sell for China. Unfortunately, a lot of people have lost their jobs all together so they can't buy the coffee maker at the Wal-mart in the first place.

YELLIN: And Richard last question. The U.S. consumer really has taken a beating basically and President Obama says we're going to double exports to create jobs here at home. So where in the whole world really are these new consumers for U.S. goods really going to come from?

QUEST: There are plenty of consumers. Southeast Asia and large parts of the continent are going very fast. Europe will start growing again. Germany will start. The problem is the price factor. The problem is Americans love to shop on credit and they love to borrow and even if they're deleveraging now, which they are only to a limited extent, they will soon ramp it up again. It's the nature of the beast.

Until that fundamentally changes, it goes back to the old faction days. They always used to say the Japanese won't spend and the Americans won't save. And that really, there isn't much change.

YELLIN: Not shocking the overseas fellow accusing us of consuming too much. Peter thank you so much for joining us. And Richard stay with us we're going to be back with you after this.

Next, it is the largest environmental disaster in U.S. history. But how much are Americans outside the Gulf feeling the oil crisis?

(COMMERCIAL BREAK)

YELLIN: The worst oil disaster in U.S. history has not only devastated wildlife, but also the livelihoods of many businessmen and women in the Gulf. Tyson Slocum is the director of Public Citizen's Energy Program in Washington. And Tyson, I want to ask you, it's bizarre to me while we see the devastation in the Gulf is affecting so many people, the rest of us around America really haven't felt an economic impact. Will we?

TYSON SLOCUM, DIRECTOR, PUBLIC CITIZEN'S ENERGY PROGRAM: We may in some circumstances. You're right that it is just a geographic crisis for those living in the coastal Gulf States. Particularly those that rely on commercial fishing and tourism for their livelihoods, those folks have been heavily impacted and the payments by Bp so far have not been adequate to make up for their lost income.

In terms of energy prices, the vast majority of Americans were not experiencing price increases because for all the hype, the offshore drilling, moratorium and the spill has not sent panic with energy traders so the price of oil and gasoline have remained very stable and even though fish from the Gulf of Mexico represents about a fifth of U.S. demand, we haven't seen fish prices increase either.

YELLIN: Lets get to that, I want to show you a chart that shows oil prices. This was last year. You can see the spikiness in past times and extending out. Look it's been pretty stable over the time that we've seen the spill. If there's a threat of war, we see these spikes. But why not now?

SLOCUM: Well I think it reflects the fact that the Gulf of Mexico is not a huge source of global supply and demand. We sit on a very small amount of oil here in the United States and so while it might be big to a handful of offshore drilling firms, in the scheme of global supply and demand it's just not very much.

We saw in the past huge speculation driven price spikes due to hurricanes and the threat of terrorism overseas. But now with Wall Street being reigned in, the ability of those speculators to drive prices up for crises like that is a lot more limited.

YELLIN: Interesting. You also mention the price of seafood. Many of us I really expected to see fish and seafood prices sky rocket on menus. It hasn't. Is that because we get so much of our seafood from outside the American waters?

SLOCUM: Yes, we are still seeing a large number of imports but I think that we might see a threat to higher seafood prices in the near future because we still have millions of barrels of oil that have seeped into the Gulf of Mexico and we have got hundreds of thousands of gallons of chemical dispersants and we haven't adequately measured what the impact of all of the chemicals and oil have been on the Gulf of Mexico ecosystem.

So I think the jury is out in terms of what the total impact on commercial fishing will be. So we will see a potential threat to higher food prices.

YELLIN: We just don't know how much.

SLOCUM: Right.

YELLIN: Right. This is interesting to me. Despite the environmental damage and there's obviously huge emotional and psychological toll that this spill is taking, amazingly by some estimates, because of the massive cleanup effort and the amount of money that is being spent on that, the spill might actually contribute to increased GDP?

SLOCUM: I'm not sure about that. Maybe in the short term because you've got a lot of spending on contractors and all of these folks, but once the oil is removed from beaches, the impact on commercial fishing is still going to be felt because just because we can't see the oil coming up on the beaches, there's been a profound impact on killing marine life in the Gulf of Mexico, I think tourists still may be scared away particularly those coming from Europe and overseas.

So even though we might see a temporary blip in temporary employment for the cleanup efforts, I think there's going to be some long term ramifications for the folks in the Gulf that's very serious. And we also have to look at the potential impact on federal taxpayers. Because while Bp has set up a $20 billion escrow account, that's not going to be enough and if Bp starts encountering some financial problems, who is going to pay the bills.

YELLIN: You think the tax payers will absorb it.

SLOCUM: I think there's a risk of that.

YELLIN: There is another debate about whether taxpayers will be absorbing costs and that has to do with the possibility of a clean energy bill. Who knows if there's actually the political will to get something through Congress this year, but if there is, do you see that having an impact on prices nationally?

SLOCUM: It depends what kind of clean energy bill. Right now I think it's a no brain that Congress needs to pass reform in the way that offshore drilling has been regulated or not regulated in this case. We have to have stronger protections for workers in the environment; we have to hold big oil companies accountable.

But then there's efforts to try to get a broader energy bill to talk about the long term problems of our oil addiction to try intentivize clean energy to maybe put a price on carbon, so we can start addressing climate change and addressing climate change, there will be some costs to consumers, but right how consumers are bearing a lot of costs of imported oil and obviously the environmental impacts of our oil addiction.

YELLIN: All right. Tyson, thank you so much for joining us.

SLOCUM: My pleasure.

YELLIN: Tyson Slocum, director of Public Citizen's Energy Program.

Bp's image problems won't end with the spill in the Gulf. Folks on Capitol Hill are now raising new questions about something else related to Bp. Let's bring back Rich Quest from London.

Richard there are now questions as to what role Bp may have played in the early release of that terrorist who was convicted in the 1988 bombing of Pam Am flight 103 which exploded over Lockerbie, Scotland. That flight killed 270 people, including 189 Americans. We understand you sat down with the Libyan oil minister and asked him about that. What did he tell you?

QUEST: The allegation is substantially this, that as the price for Bp being the granted rights to drill offshore in Libya, the British agreed to release al Megrahi, the only person ever convicted of the Lockerbie bombing. Bp admits that there were concerns that the treaty delay was harming commercial interest; the British government has said in the past that commercial interests did play a part in their concerns.

However, everybody always denies that there was a direct quit pro quote for releasing Al Megrahi who is currently back in Libya. Now it is important to understand for the background because when I sat down with the Libya oil minister he was the man who did the negotiations with Bp, he was the man who denies categorically that there was any give and take for Al Megrahi for Bp to get rights to drill.

YELLIN: And is there any indication that there's reason to believe that these folks are being dishonest? There are folks on Capitol Hill who believe there's something that is not being said.

QUEST: I mean, you take people at their face value. You have to. But just one other point to listen to. I asked the minister exactly that. Was he worried about the Senators and Congressman about to have hearings on the hill? And I think this is as close as you're ever going to get to a minister saying good luck to them.

YELLIN: All right. Richard, impressive interview. We know you're coming back with a much lighter story next.

And coming up next, the story is the man who claims he has the key to losing weight.

Plus, here's a roman's numeral for you and she's not even here. What the 9 pounds, 10 ounces, and exactly one week old this weekend? That answer is next.

(COMMERCIAL BREAK)

YELLIN: Despite unprecedented amounts of information on how to eat healthily, obesity is on the rise around the world. Richard Quest is back from London. He recently sat down with the CEO of Weight Watchers. And it turns out the company is not doing as well as you might think.

(BEGIN VIDEOTAPE) DAVID P. KIRCHHOFF, PRES. AND CEO, WEIGHT WATCHERS: It was as tough an economic time as we've seen. And any business that is in consumer discretionary certainly felt the effects of that. But, you know, I think the fundamental thing is that the economies come and go, but the issue of obesity is not going away. And the suitability and the directness of the weight loss approach for addressing this from a societal perspective has never been more apparent and obvious.

QUEST: Well, let's start with your numbers, then. If you believe it is a result of the recession, your next quarter and the rest of the year should show better. Are you seeing that?

KIRCHHOFF: We just finished our second quarter right now. And we're not going to be reporting earnings for a few weeks now. So I can't talk about what's going on in the past three months. Other than to say that the fundamentals of our business haven't changed. In other words, business was negatively affected by recession. At some point recession begins, that goes away. The fundamental demand for what we do is still there and it's going to get stronger.

QUEST: How have you had to adapt your fundamental product? Which is basically people coming together to -- for peer and group support in the weight loss process. But more and more of us are preferring online. We are with our computers.

KIRCHHOFF: What we're finding most effective, we're taking the best elements of online and we are combining it with the face-to-face interaction, the group. And those two things working together is an unbelievably powerful combination. I would suggest to you that Weight Watchers was the original social networking company. Of course, I would say that. We're doing all the things without stepping away from who we are. We're also stepping into where the future is.

QUEST: And which countries where you're not, do you want to be?

KIRCHHOFF: Well, we have a business in China. Brand new, we're in Shanghai. But we think that it's -- we think that there's going to be -- wherever obesity is becoming an issue, we'll be.

QUEST: On the China question as a CEO, you've seen the debate at the moment. Whether it's American CEOs saying that China doesn't want them or they're finding it very difficult. As a chief executive, how are you finding getting into China and doing business there?

KIRCHHOFF: We're actually -- it's very early days for us, but we're very pleased in what we see in China right now. We think there's a fundamental need for what we do. We see the consumer being responsive to it. And for us, it's been a very constructive process. I'm not in the business of selling wind turbines, I'm in the business of helping people adopt change of life. And I think that for the kind of business we're in, everything we've seen in China is terrific.

QUEST: We haven't touched our lunch. It smells very good. Look, you say everything in moderation.

KIRCHHOFF: You know, actually. I think this might be a -- that's a meringue, which is a less bad choice as far as desserts go. So your effort to stump me with calorie layden food hasn't been completely successful.

QUEST: Thank you very much.

KIRCHHOFF: Thanks.

(END VIDEOTAPE)

QUEST: That meringue, Jessica, lasted mere seconds before being devoured.

YELLIN: I would be so intimidated to lunch with the head of Weight Watchers. What did you guys eat before the meringue?

QUEST: I'll tell you, all I had was a little bit of salmon on the bread and he left the bread, which I then polished off afterwards.

YELLIN: I bet. And did he tell you what is on the Weight Watchers diet in China? I'm guessing no Kung POW chicken?

QUEST: It was pretty difficult. But at the end of the day, he really makes the point. Dieting is one thing, learning how to eat better and less and behavioral changes, that is something else, something more difficult.

YELLIN: I know I've heard that so many times. OK, Richard, I think you want to stick around with me for this one because that wraps it up for this show. YOUR MONEY with Ali Velshi will be back next week, Saturday 1:00 pm Eastern and Sunday at 3:00 pm.

But if you're wondering where Ali's co-host Christine Romans is, she's on a very special assignment. Have you seen this picture, Richard? She and her husband Ed welcomed this little baby boy, cute Edward Arthur. He came in last Sunday night, he weighed in at 9 pounds, 10 ounces, and he joins older brothers Billy and Finn. Congratulations to Ed and Christine. She didn't even look pregnant, did she?

QUEST: Well, trust Christine to give birth in the middle of earnings season and produce such a large spin-off and a subsidiary that I have no doubt will produce good results in the future. She is now a conglomerate with all those other children. And we've already put Edward Arthur's name down for a couple of shifts at CNN next year.

YELLIN: Oh, poor thing. Give him some time. Thank you, Richard, for joining us. Richard Quest from London.

And don't forget, you can connect with Christine and Ali on Facebook and on Twitter at Alivelshi and at Christine romans. Have a great weekend.