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Financial Fear Factor; Taxes

Aired July 31, 2010 - 13:00   ET


ALI VELSHI, CNN HOST, YOUR MONEY: Christina is off this week. This economy is growing even though the pace of that growth has slowed and yet confidence is sinking. Businesses are holding back on hiring indicating to some people that the worst is yet to come. Diane Swonk is the chief economist at Mesirow Financial. Diane let's talk about this.

The fear seems to be gripping the economy. It's not the same fear we had a year and a half ago. A different fear that maybe we're not going to emerge from this bad economy as strongly as we would have hoped. And that's holding people back from buying things and it is holding companies back from investing and hiring people. Diane, do you think these concerns are legitimate and if not, what can we do to get past it?

DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: Well the concerns certainly are legitimate. The economy feels like its growing so slowly it's like being stuff in a traffic jam. You're moving forward, but every inch you make forward anxiety builds because you don't know if there's an accident ahead or a detour ahead. And that is exactly what the economy feels like today particularly for the U.S. consumers. Consumer confidence has taken a hit because in fact hiring has not picked up as many would have hoped it would.

The unemployment rate remains extremely high. On the flip side of it business investment is picking up. We're seeing businesses invest at a double digit pace in the second quarter and really seeing very strong investment in new technologies. The double-edged sword of that of course is that we're seeing consumers not get jobs from that. Because as capital investment picks up initially that boost productivity growth but it means you can do more with what you have got, you don't have to hire a lot of people. Over time we know that the rebound and profits will add to hiring but it's been a very slow process.

VELSHI: Justin Wolfers is an associate professor in business and public policy at the Wharton School of the University of Pennsylvania. Good to see you, Justin. I'm sure people ask you all the time is the economy getting better, is it getting worse. Take a look at this; this is GDP growth for the last six quarters, the last year and a half. You can see generally the pattern was from bad to better and then the last couple of quarters, we're growing. We're above the zero line but we're not growing by much. The question I have, Justin, or that I get asked a lot. What does the average person got to do with GDP? It is the biggest measure, gross domestic product, it is the biggest measure of our economy, is it relevant to whether or not we have a good strong economy or not? Is it relevant to these fears that I was just talking to Diane about?

JUSTIN WOLFERS, ASSOC. PROFESSOR, WHARTON SCHOOL: Absolutely it's relevant. GDP is just a fancy way economist's way of saying averaging counting the whole economy. Now, it turns out when you look at things that make people happy. You try and look at which economic indicators correlate with their well being. GDP really helps, the really big won that matters to people are unemployment. When unemployment rates are high, or when you in particular are unemployed you are having a pretty tough time of things and so that I think speaks to how GDP can be growing and economists are telling us that things are getting better, there is a lot of people out there who think that things are still pretty grim and that is because unemployment is high and it looks like it is remaining high at the moment.

VELSHI: All right. We are in an election cycle there's no question about this. This comes up a lot, people accusing the administration of not doing the right things to generate business, to generate those jobs. And many of those jobs are created when people as you said, Justin, decide that they're confident enough to start spending their own money. So Diane, what has to happen? What has to give to make it feel like a growing economy? What has to happen to make people feel like they have a job and that their money is well spent and to start creating jobs in a virtuous cycle?

SWONK: Well, you know, that's exactly the problem is jobs. What we're seeing is we've got a headwind in the dog days of summer right now. As the census hires come off and state and local governments begin to do their budget cuts we're seeing job growth actually go in the other direction. We saw negative job growth last month. Even as private payroll picked up, the loss from government jobs actually stabbed of net job growth in the U.S. economy. So it is jobs, I think the hard reality is that as much as all that we did during the 2008, and early 2009 to stimulate and to stem the blood money it stopped the losses that we thought in the U.S. economy and did trigger recovery.

But the problem is it's not enough and it's not -- the economy is not growing fast enough. The pace at which we grow is really important. Because it's not growing enough and fast enough to generate enough jobs to have people feel good about it. I think we will see some hiring pickup in the fall, but it's still going to be a very long slog, it is very high unemployment. The real issue for most consumers out there is that it's also been long rate of unemployment. The duration that people are unemployed is very long, stay the longest ever. I think that's the real issue is the sense that you're losing your skills. You're not able to get back in the labor skills and anxiety rises the longer you are out of the labor force as well.

VELSHI: We just saw some numbers. Consumer confidence decreased again in July, the measure of consumer confidence put out by Reuters and the University of Michigan showed a decline because of heightened concerns about personal financial prospects as well as about the over all economic outlook. I want to ask you, Justin. It has been a tough time we have gone through, it seems a lot better than it was at the end of 2008 and even at the end of 2009. Still there's this benign recovery. People aren't really buying into it. They're not sure about it. What do you think the next decade looks like? If you tell me it looks good, I might start making decisions about spending or investing or hiring people.

WOLFERS: There's two types of recovers that you can see out there in the world, usually for the U.S. economy in particular when things get bad the economy snaps back to where is was before the recession. Bad recessions are usually followed by really robust recovers and so the optimistic economies out there are sort of hoping that the past to the U.S. is one of the future. There's the pessimist I might be one of the pessimist and it sounds like Diane might be too.

We worry that this recession is different, and this recession is different because a lot of the unemployed now are long-term unemployed. They're losing skills and they are loosing touch with the labor market and they are loosing hope. And as that happens they starts to become disenfranchised from one of the most important parts of our economy and in fact our society. And when the growth returns they may not be ready to take those new jobs. This is what we learned in Europe in the 1980s, and 1990s. A lot of long term unemployment and so the unemployment rate remains very high for a decade even after a serious recession. So I think the key to getting the next decade right is getting a long-term unemployed back to work.

VELSHI: That's going to be the goal and that is going to be the discussion that is going on throughout the election. That's going to be what you're hearing from the administration and everybody else who is running for election. We'll talk to you both again. Thanks very much for joining us, giving us your sense of what you think the future is going to look like. Justin Wolfers is an associate professor of business and public policy at the Wharton School in Philadelphia. Diane Swonk a good friend of our show, the chief economist at Mesirow Financial. Thanks to both of you for being with us today.

Now let's talk about taxes for a second. If you thought only the wealthiest Americans would be paying more in taxes you might want to stick around for this. Coming up next we will explain why a tax hike might be on the way for almost everyone.


VELSHI: On the campaign trail in 2008 President Obama said no family making less than $250,000 will see any form of a tax increase. Unless Congress does something soon, that won't hold true because the federal tax cuts of 2001 and 2003 are scheduled to expire at the end of this year. Senior correspondent Allan Chernoff explains how this could have an effect on virtually all of us.


ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT (voice over): The Chudyk's of Ramsy, New Jersey like to enjoy their money.

CHRIS CHUDYK, CERTIFIED PUBLIC ACCOUNTANT: We're definitely spenders. We like to have a good time, like to enjoy life.

CHERNOFF: But even though Chris and his wife Dawn have stable jobs they're preparing to tighten their belts. Chris, an accountant, figures he'll soon need and extra $350 a month to pay more federal taxes.

CHUDYK: Where does that come from? Maybe not going out to eat as much, maybe bringing a lunch to work. You know also reducing maybe the amount that we can save.

CHERNOFF: Brace yourself. There's a very good chance your family also may soon have to confront the same tough choices, find extra money to pay Uncle Sam. Tax rates are scheduled to rise once the year ends. That's because tax cuts that President George W. Bush championed in 2001 and 2003 were put in place only through the end of the decade.

SCOTT HODGE, PRESIDENT, TAX FOUNDATION: If Congress does nothing it could lead to one of the largest tax increases in American history.

CHERNOFF: President Obama pledged let taxes rise only on families earning more than $250,000 per year. But as things stand right now tens of millions Americans who earn less are about to get whacked by new higher tax rates.

ROBERT TRAPHAGEN, PARTNER, TRAPHAGEN FINANCIAL: If new tax legislation is not implemented it would be a dramatic effect to the middle class.

CHERNOFF: Middle class tax rates are scheduled to go up by 3 percent. But the Chudyk's earn just over $175,000 the change will put them into the 31 percent marginal tax bracket, up from 28 percent today.


CHERNOFF: Also due to change, the tax credit that middle and lower income families get for each child would be cut in half to a maximum of no more than $500 per child and taxes would rise on dividends and capital gains, especially hurtful to retired Americans. In planning to let taxes rise President Obama hopes to chop the budget deficit. But if families like the Chudyk's cut back spending by $350 a month that could hurt the economy and that could derail the recovery, and if that happens some experts argue it could mean lower overall tax revenues for the treasury.

There is some hope for the middle class. Senate finance chairman Max Baucas supports making the tax cuts for middle income families permanent and on the House side Democrats say they also want to give relief to the middle class. So there is a chance couples earning less than $250,000 a year will be spared which is exactly what President Obama has pledged. But for those earning more than $250,000, rates are almost certain to rise.


VELSHI: All right. So at the end of your story there Allan you hit on a very interesting point. And that is if that family there ends up paying $350 more a month in taxes, that's possibly money that they would have spent somewhere else that might have helped the economy out. But as you said, at the end of this year, someone, maybe just wealthy Americans is going to see a tax hike. With this uncertain economy we're in right now, we saw GDP come in lower than we expected it to come in. We saw consumer confidence come in lower in July than expected, what does a tax hike whether it's on just the wealthy or the broader middle class do to the struggling economy?

CHERNOFF: Ali, it's a major risk, there is no question about that because the consumer does fuel the economy. And as you accurately point out right now, the consumer is not feeling all that good. Confidence is pretty low. Consumer spending has not been driving this economy. It's more business spending that's been holding things up. So if the consumer is whacked some more, you pull back, you get that a little bit less in the equation in terms of the economic growth. It's a real risk, but Washington needs to also deal with that budget deficit.

VELSHI: And that's a good place to bring in Gloria Borger, she's our CNN senior political analyst. Gloria the president not getting great marks for his handling of the economy and we can debate whether or not it is his economy or someone else's that he inherited but he is two years in and basically most people think it's largely your problem. They don't blame President Obama for the position they're in. We're talking about whether he's handling it the right way. This is a big, big challenge for us going into the midterm election because you're going to have this administration trying to say this isn't our problem and you're going to have Republicans saying it's totally your problem.

GLORIA BORGER, CNN SENIOR POLITICAL ANALYST: Right. And you know they're going to have to figure out what to do because as Allan was just pointing out, these tax cuts expire January 1. I mean I remember when they voted in these tax cuts, remember that thing called budget surpluses and George Bush was telling people we want to give you your money back? But even Congress understood that at some point that could cause a deficit problem.

So you have the president right now. You have the treasury secretary right now, the speaker of the House all saying if your family earns $250,000 or less you're going to keep your tax cuts. And you have some moderate Democrats joining with Republicans and saying what Allan is talking about which is this is not the time to raise anyone's taxes in a recession, even on the top 3 percent of wage earners in this country. However, you do have a bunch of economists, who say that those people will continue to spend even if they do get an increase to 39.6 percent, which just, by the way, returns the wealthy's tax rate to where it was during the Clinton years.

CHERNOFF: Ali, Gloria, there's another aspect to this as well. Because the wealthier are going to get hit as mentioned on the dividend side of things and on the capital gains as well. I mean after all, it is primarily the wealthy who are the folks who own stocks. So these tax increases make investing in stocks less attractive, and we also do need to rebuild confidence in the stock market.

VELSHI: But you did say, exactly Allan. You did say that it's businesses that might be spending now and this is where our worlds collide because there's a world that says don't help business out at the expense of people, particularly since look at what the big businesses did to get us into this mess. But as we know Allan with out big business investing, with out wealthy Americans investing our ability to recover is slowed down because they invest in stocks, those companies get money, they hire people. Those people get jobs and then they spend. How do you square this circle? Allan, let's start with you.

CHERNOFF: Well, you've got to look, first of all, at the short term and the long term. Long term we do need to reduce our deficit. We have a real risk long term that interest rates could shoot up, the recalls of these deficits we have been running. Right now the economy is still fairly week. Interest rates are extremely low. So that is not a problem. So a lot of economists would argue, look, you've got to still prime the pump. You've got to get money into the economy long time for a tax increase.

BORGER: Well, you know, the president is talking about help for small businesses for example to offset this. But if we were to extend all of these tax cuts right now, it would be $2 trillion added to the deficit. By the way, we have a deficit commission, which is supposed to report December 1st.

VELSHI: That's right.

BORGER: There are some folks who are saying, gee, maybe they'll kick the can down the road a little bit and let the deficit commission deal with this or maybe they'll deal with it in the lame-duck session. However, that would really be agitating their responsibilities right now, not that that's not beyond them. This is an issue; they're just going to have to deal with it. The Democrats are going to say, you've got to think about the deficit here, and they're going to say Republicans are hypocrites if they don't.

VELSHI: This is a tough one to deal with because neither higher taxes nor higher deficit are good for an economy but we may be faced with a choice. Great to talk to both of you. Allan Chernoff, Gloria Borger always a pleasure to see you both.

BORGER: Thanks.

VELSHI: Financial reform, you know that that bill went into law. Our next guest says it might be the best law that money can buy. He'll explain to you what that means when we come back.


VELSHI: One major criticism of the recent financial reform law, the role that the massive Wall Street lobby played in drafting the final bill.


SEN. CHARLES GRASSLEY, (R) IOWA: You know, Goldman Sachs and Wall Street people wanted this bill passed, and if it's such a change of environmental for Wall Street, why would Wall Street be backing it?


VELSHI: That's a good question. Steven Brill is a longtime journalist; he is a founder of the American Lawyer, co-CEO of Journalism online. He joins me now and he says this is the best bill that money can buy. So, Steven, you think that the lobbyists got their way in large part.

STEVEN BRILL, FOUNDER, THE AMERICAN LAWYER: Well in large part they did. I disagree with the Senator. I think if they had their way, really, they would prefer that nothing would be passed. There really isn't any question that there's some significant reforms here, but at the edges, at the margins, lobbyists were able to do what lobbyists can do which is get a slight change in wording here, a paragraph inserted there, a change in a sentence here that adds up to billions of dollars worth of change for the interest that we are able to pay all these lobbyist to try to go get that change.

VELSHI: Now some will argue, lobbyists will argue, and lobbyists are on all sides of an issue, they will say that they're the ones who helped form this legislation and other legislation. This isn't unique to this legislation because they're aware the rubber meets the road so they guide legislators and their staff into saying this wouldn't work but this does. How much of this is necessary lobbying and how much of it is undue influence?

BRILL: Well, it's a combination of both, but they're definitely right in the sense that if you're in the xyz industry and a bill is being passed to regulate your industry, you obviously will know the most about how that bill and how little new answers in the bill will affect your industry and may have unintended consequences. So really good members of Congress were telling me that they will use lobbyists as a sounding board and say what about this, what about that, and they'll try to play it off people who are on the other side of that lobbyist.

The problem here is that the scales really aren't very well balanced. Those people representing the big banks and the other bit interests have many more lobbyists and are very skilled and they can sort of outweigh the voice of lets say the consumer advocates. But that's the system we bargained for when we passed the first amendment.

VELSHI: In some pieces of legislation it is more balanced, you have people on both sides perhaps lobbying, you are spending similar amounts of money, but in this case that is not the case.

BRILL: There were some instances for example of the fights over limits on what the banks could charge merchants for debit card usage. The merchants were the big box stores like Wal-Mart and Staple's and the banks, now their lobbyists thought that was a pretty fair fight.

VELSHI: Let's talk about this, the Chamber of Commerce. Which has spent a lot of money lobbying for business interest and opposing a lot of what this administration has done. They spent $144 million last year lobbying for business interest and yet a lot of the things that they specifically didn't want in this financial reform bill made it in. What does that tell you? Does that tell you that despite all of this lobbying effort there's just some stuff that still works in Washington? BRILL: Well, when the public pays attention and the public cares, members of Congress will pay attention to that. The only thing that members of Congress care more about then donations to their campaigns are votes. So if the public's paying attention, if it's a high- visibility issue, the role of lobbyists will go down. But by the same token when it's no longer a high-visibility issue, the role of lobbyists will go up.

Now what we are going to see now that the regulations for all this stuff have to be written and these are thousands of pages of unintelligible regulations, there is not going to be a lot of visibility on that and the lobbyists will have lots of influence and it's going to be up to the press to pay attention on behalf of the public.

VELSHI: You bring up a good point. I'll use my cliche where the rubber hits the road. This legislation is actually going to be now where the law becomes regulation, those regulations are written, and if we all go away from this thing, it could be just the lobbyists left in the room with the legislators.

BRILL: Exactly right. You know some of this stuff is so arcane and it is so boring and it is so meaningless to all of us except for the people to whom this means millions of dollars or billions of dollars.

VELSHI: I want to ask you one thing. Goldman Sachs settling with the S.E.C. for more than half a billion dollars, Citigroup this week says it is going to pay nearly $75 million to settle charges from the S.E.C. that it misled investors about its exposure to sub prime mortgages. Steven do you get some sense that these penalties while they sound huge, in the case of Goldman Sachs the biggest settlement ever for the S.E.C., I hear a lot of people say this isn't enough money to make any of them change the way they do business.

BRILL: Well the settlement, the amount of the money might not be enough but we can hope that the embarrassment of the case, you know, might be something. But I haven't read all the details of the S.E.C. case against Goldman so I certainly don't know as much about it as I should.

VELSHI: Steven good to talk to you. Thanks for coming on to talk to us a little bit about this. Steven Brill is the founder of the American Lawyer and the co-CEO of Journalism online.

Immigration another topic that we're talking about a lot, we are going to have a conversation about it like none that you've seen this week. We're going to try and strip away race and politics, image that we are going to try strip away race and politics from the immigration discussion and reveal exactly what immigration policy would best suit this country and this economy.


VELSHI: If you eliminate race and politics as considerations to the immigration battle, well, you may not get the policy you want, but you may find that you get the immigration reform that would be best for our economy. Pia Orrenius is a senior economist at the Federal Reserve Bank of Dallas and the author of "Beside the Golden Door: U.S. Immigration Reform in a New Era of Globalization."

Lets just talk about this for a second, immigration is such a dynamic thing in terms of the economy, immigration policy might be the least dynamic part of our entire government. Strictly in terms of the economy we have here in the United States. What do we do? Where do we get it right on immigration policy? Where do we get it wrong?

PIA ORRENIUS, FEDERAL RESERVE BANK OF DALLAS: We get several things right on immigration policy. I mean we do what we can to bring in high-skilled workers in particular. One way we do it is through the Green Pipe Program. The problem with the Green Pipe Program which Ali is a million permanent residents visas per year, the problem with it is about 85 percent of these visas go to family base and to humanitarian immigrants and only 15 percent go to work-based immigrants. And further more the 15 percent that go to employment base only about half go to workers and the rest go to dependents. So we basically have a system that short shifts employment based immigration.

VELSHI: Let's bring in my colleague, CNN International Richard Quest; he's the host of "Quest means Business." Richard while a lot of Americans will tell you this a particularly American problem it is really not. Most countries have the very debate that is going on in the United States to some degree or other. Do you get some sense in all of your travels that some places get it right in terms of immigration policy, the kind that actually supports their dynamic economies?

RICHARD QUEST, CNNI HOST, "RICHARD MEANS BUSINESS:" Not really because of the discrepancy between just as you were talking about, between the highly skilled and the manual labor, the needed to basically run many economies. It's exactly the same in the European Union where there's been a huge migration of workers from the new eastern countries of the EU into the western countries. Some would describe that as pure and simple economic migration. What they call during some campaigns the polish plumbers who moved west.

Even now here in the UK, at the moment there is a plan going through the government to cap the number of non-EU immigrants allowed into Britain. You see, within the European Union, everyone is allowed to move anywhere but what the government in Britain wants to do is put a ceiling number of non EU immigrate. What's doing, Ali, is distinguishing because companies are squealing in Britain today. They are complaining that there aren't enough high-grade, high quality visas necessary.

VELSHI: Pia, I'm going to ask you this. Here in the United States you have people at both extremes. You worked in this, you specialized in this, you have written a book about it, and you worked in the administration. One extreme says we don't do well. We don't bring in the high skilled labor that we need. The other extreme says we give too many visas out and we invite too many people into this country. What actually is the truth in this country? How much immigration do we need? ORRENIUS: Well, the truth is -- I mean the truth is that let's start with how we bring people in. I mean that is the basic problem that we deal with in the book. So take for example the H 1 B program, we try to compensate for the fact that we allocate very few green cards to high skilled workers by bringing high skilled workers in on temporary bases, like the H1B. But then when these workers decide they want to stay permanently and they apply for a green card they still run into a quota and they are stuck in long lines. Right now there is a million approved applications in the green card, so you wonder if it's going to take ten years to clear if there's no action.

VELSHI: Pia, I hope lots of people read your book, because what people need to do in this country is know exactly what this topic is. It's very hard to get past the hyperbole and actually understand what the issue is with immigration. Pia Orrenius is senior economist with the Federal Reserve Bank of Dallas and the author of "Beside the Golden Door: U.S. Immigration Reform in a new Era of Globalization.

Richard, you stay right there. We're going to continue our conversation when we come back. Morality versus money. Find out what the government is looking to legalize to fill its budget gaps coming up next.


VELSHI: I'm back with Richard Quest, host of CNN International's "Quest means Business" and making his debut on our show Pete Dominick, he is the host of Sirius XM "Stand up with Pete Dominick in addition to his regular off beat recording on "John King U.S.A." every week night at 7 pm Eastern.

Let's get right to it, guys. Bp made the change that everybody expected. They replaced CEO Tony Hayward; Hayward said he will be replaced by October. Hayward told the "Wall Street Journal", quote, "I became a villain for doing the right thing." One major reason for Hayward's demise, pr blunders like these. Take a listen.


TONY HAYWARD, FORMER CEO, BP: This wasn't our accident. It was the drilling rig operated by another company; it was their people, their systems, their processes. We're responsible not for the accident. I think it's been very, very modest. There's nobody who wants this thing over more than I do. I'd like my life back.


VELSHI: Let's start with Richard. Richard, Tony Hayward, incompetent or a victim of really bad pr training?

QUEST: Certainly not incompetent in the sense that from day one Bp has always said it will clean up the mess and it will take care of those people involved. No. Complete and utter disaster when it came to p.r. When you think of the number of people that Bp must employ, and you really have to question whether or not they are worth that money or not, it's a difficult one, but I do think there will be change now. Bob Dudley right from the get-go, he has put his finger on the pulse. And you know something, Ali, it doesn't matter which way you look at it. You have this duty, I feel your pain. If you don't do the "I feel your pain," you come off as uncaring capitalism.

VELSHI: Now I have to say Bob Dudley the incoming CEO first American to run a big British company like Bp, I'm not sure --

QUEST: Don't get so hung up on the nationality of the people involved. It was the incompetence of the way it was handled rather than the nationality.

VELSHI: OK. Pete, ignore the fact that it's a British company.

PETE DOMINICK, HOST, "SIRIUS XM STAND UP:" Yes, Ali we're not talking about soccer here or football. First of all I didn't know you were going to play those clips. They make me sick to my stomach listening to Tony Hayward complain and it is a duty and I feel your pain. First of all you can say I feel your pain, but nobody believes it. This guy was in charge of the company during a time Ali, that it had a culture of corruption in safety measures. He can blame it on anybody he wants, it falls on him. Him and all these other oil companies didn't spend one dime on investing in a clean-up technology and you can argue that is certainly how effective their bottom line of profitable and we see they're in pretty bad shape.

QUEST: Hang on, hang on. Get off your high horse. Because the fact of the matter is as long as Americans continue to want and demand the very cheapest in fuel and are not prepared to invest in the clean technologies, the higher tax is necessary. They want to drive big gas guzzling vehicles, you're going to end up with profit first.

VELSHI: No problem there. You're right on that one. That one gets us into trouble all the time. Because everybody wants some very discreet entity to blame but the reality is nobody goes and digs in a mile of water for the fun of it. They dig into it because we buy everything that they actually produce out of the ocean.

DOMINICK: Tony Hayward saying he got demonized is really just offense to actual demons Ali Velshi. I agree thou with Richard. Americans need to stop buying all the bottled water and everything else that we do that contributes to our problem. We're very, very greedy. We're 25 percent of the world's population, 25 percent of the energy. That's ridiculous.

VELSHI: Let's talk about be greedy, let's talk about gambling. The federal government here in the United States banned internet gambling back in 2006. Four years later, you might say one economic meltdown later; everyone can use the tax dollars that are associated with legalizing gambling. Illegalize gambling you have to collect taxes. So Congress is considering allowing and of course taxing on line poker and other non sports betting. Pete, in a financial crisis we look to tax everything and morality sometimes lose out to money. Is it a good thing?

DOMINICK: I think so. I mean I don't promote gambling. I think its grotesque, especially if you're a parent. The federal government isn't there to tell you not to be foolish in the way that you spend your money. The bottom line is if you have a checking account and an internet connection, you can go online and you can bet. We might as well tax it; they say it's going to be $42 billion over ten years. That is about $4 billion; they want to put it in the education system. If my daughters get an extra teacher, an extra computer so some old lady can smoke her cigarettes, drink her free liquor and spend the last of her Social Security check on the slots or online, I'm fine with that.

VELSHI: Richard, you said to get off your high horse a few minutes ago. So we're getting off our high horse. We are saying you know what if you've got to gamble, gamble just give us our cut.

QUEST: Stop the hypocrisy first of all. They have Atlantic City that has Los Vegas that actually demonized those CEOs and executives from other online gambling corporations who can't even go to the United States without risking arrest. And I've met some of them, and they will tell you that. So it makes common sense. And you know something? Perhaps the amazing thing is it took a financial crisis for a bit of dose of reality.

VELSHI: Very good, gentlemen. We look forward to more conversations with both of you. Richard, you're a regular. Pete, great to see you. Love the haircut. Hope to talk to both of you again soon.

All right. How trustworthy is your financial adviser or broker? Protecting your money from financial con artists. You are really going to want to listen to this, stay with us.


VELSHI: You have heard of the biggest names, Bernie Madoff, Charles Ponti (ph). But financial con artists are all around us scamming people just like you or me. Even though we may not always hear about it in the headlines. Now, Tom Ajamie is the co-author of a new book called "Financial Serial Killers: Inside the World of Wall Street, Money Hustlers, Swindlers and Con Men."

Tom and I go back a long way, we have worked together for many years. I read the book before it went into print and gave him an endorsement of the book. So I just want to tell you that I read it and I know it. Tom the interesting thing is you cover everybody from Bondy (ph) to Madoff, but a whole bunch of people we've never heard of. You've even been involved in some of those cases as a securities lawyer. How common is financial swindling?

TOM AJAMIE, CO-AUTHOR, "FIANCIAL SERIAL KILLERS:" Well you know, Ali, it's very common. The sad thing about is its common in relationships of trust and longstanding relationships. I think what was most interesting we found that our resources when we put the book together is how many people are swindled by investment advisers or brokers they have known for say 10 or 20 years or longer. How often are they swindled by family members and relatives even?

VELSHI: All right. Let's talk about some basic things; they are similarities in many of the stories in your book. It is a good read because by reading it you'll get familiar with techniques that these con artists have in common. Who's most vulnerable? Who's most likely to get scammed by a con artist according to what you have seen?

AJAMIE: Well I think generally anyone whose lost money in the last few years is extremely vulnerable. And that is a lot of people. And what we find is that when you've lost money you become a little more desperate to try to earn your money back. Especially if you are getting close to retirement or so you say, wait, I'm down 20 percent, I'm down 30 percent, what am I going to do. So you're susceptible to these scam artists and they know that and they move in on you.

The second group of people that are extremely vulnerable and this is becoming more and more to light day by day as the boomers age are the people who are getting older, who are elderly. What happens is you start to lose say some of your perceptive abilities, you become lonely, and a lot of these people they live alone and they don't have family members near by. And they are extremely vulnerable to being preyed on by people who try to win over their trust.

And then finally people who are going through periods of grief. We call them the bereaved. If you just had a family member who has passed away, a spouse has died. Of course you're not altogether emotionally stable because of what you've just gone through and these scam artists, they know that, and they prey on these people.

VELSHI: All right. So if you know somebody who is recently bereaved or somebody who's getting older try and stay involved at least in having them talk to you about what is going on in their lives and who's trying to invest for them? Talk to me about the strategies that these con artists use to scam average people. Give me some warning signs.

AJAMIE: Well the first thing is these are very false emotional bonds they'll try to create. They'll come in and they will tell you things like, hey, I've known your father for all these years or you and I go back to high school, remember when we use to do this and this? Or don't you remember when we use to sit next to each other in church. So they'll try these emotional bonds which often work and then they'll move in with promises of very good returns that say you can double your money or you might get 15 percent returned a year in a market like right now where interest rates are extremely low. That's very suspicious.

VELSHI: One of the things that was interesting in your book is that people - and Madoff did this and Ponzi did this. This idea that I have a new way of investing, the old way doesn't work. Everybody else can't get you more than 10 percent in a great year on the market; I have some other way that hasn't been discovered.

AJAMIE: That's the new paradigm, the new economy. And you know going back to the late 1990's and into the 2000's we heard that a lot with certain types tech stocks, remember the company and things like this. And these were sold. Investors would say, wait a second, here is a company that has not really been making money, or how can it be doing this. But the response would be, don't worry this is a new economy we are in now, this is a new theory, this is a new product. These types of things will often hook investors.

VELSHI: All right. Great book worth reading "Financial Serial Killers: Inside the World of Wall Street, Money Hustlers, Swindlers and Conmen." Co-authored by my good friend Tom Ajamie. Thank you Tom.

AJAMIE: Thank you Ali.

VELSHI: Building up Mississippi by singing and playing the blues. We will have that story and a very surprising look at Tom Foreman. Coming up next. You do not want to miss this.


VELSHI: First hurricane Katrina, then the recession hit, now the oil spill, the Gulf coast has taken quite a beating. But in Mississippi things are looking a little bit better thanks to the blues. CNN correspondent Tom Foreman recently visited the Delta on the CNN Express and he joins me now from Washington with his guitar. Tom.

TOM FOREMAN, CNN CORRESPONDENT: It was like a pilgrimage, Ali, I have to tell you, what's happening in the northern and western part of Mississippi over in the Delta. We have all heard much about it. It is really unbelievable right now. Because they know their state is in trouble. Yet, they are having an enormous surge in building up their part of America and they are doing it by reaching back into their past. Take a look.


FOREMAN (voice over): Any time, any day, you can hear blues in the Delta. This is the land of legends, muddy waters, Be Be King. And it is home to their musical heirs like Terry "Big T" Williams.

TERRY "BIG T" WILLIAMS, BLUES MUSICIAN: I don't care if it is a fast play blues or a slow play blues, it is still saying something like, I'm feeling bad but life is still OK.

FOREMAN: Lately, life has been more than OK here, even in the wake of the oil spill, Katrina and all the economic turmoil, because of a rising tide of blues tourism. At the Delta Blues Museum, the crowds are growing so steadily with people from every state and dozens of foreign countries, that it will soon be expanded to more than twice its size. This town alone pulled in $54 million from visitors last year, people tracings the history of blues and rock through a string of historic sites throughout the region called the Blues Trail. Kappi Allen is with the County Tourism Commission.

KAPPI ALLEN, DIRECTOR OF TOURISM: This year so far we have seen an increase of 13 percent in our tourism tax numbers.

FOREMAN: All of that in the middle of a recession?

ALLEN: Absolutely. We are open for business.

FOREMAN: Some say the surge is because the blues speak to folks in hard times. Some say because people here are doing a better job marketing their attractions. But Bill Luckett an owner of the Ground Zero Blues Club, says, whatever the cause, the results are undeniable.

How important do you think that is to building up this part of America in these hard times?

BILL LUCKETT, GROUND ZERO BLUES CLUB: We have lost a lot of our factories, a lot of our base manufacturing wise. Blues music and tourism and interest in blues music is replacing that as an industry.

FOREMAN: According to Lore, the great blues man, Robert Johnson, met the devil at this crossroads and traded his soul for the gift of music. That's just a legend but this is a fact.

(UNIDENTIFIED MALE): The tourist attraction used to be seasonal. Now, it is year-round.

FOREMAN: In the wake of so many problems for many folks, that feels heaven sent.


FOREMAN: You know they know that the southern part of their state is hurting right now, Ali. They also know that the coast has given so much to the whole state. They really feel this is a time for them to give back, by being strong and building up while the coast tries to recover from all those problems you named earlier, Ali.

VELSHI: Tom, given your affinity to music, you could probably sniff out the blues in Mississippi. But for the rest of us, how far reaching into the Delta is blues? How prevalent is that?

FOREMAN: A lot of counties up in that area. You can get some of it all over Mississippi and frankly all over the south. Particularly in the heart of it, up around Clarksdale and that area, up around Tupelo and areas like that, there are many, many hard-core places. But importantly Ali, one of the things that they have done is made this a regional initiative. They have partnered with Memphis for example, for all the people who go to Memphis to see what's going on with Graceland and all that, they hear about the Delta. They are told go on down, check this out. So many people make it a whole trip; they will go from Memphis down to the Delta and down to the coast, down to New Orleans. Lots and lots of Europeans are making that trip. They are hoping that a lot of Americans will start doing it too.

VELSHI: I love these trips that you do on the CNN Express. When you find out what people are doing it is not just the same old, same old moaning and complaining. You are actually finding solutions. Listen this is the tough part of my show, I have to say good bye. Normally, we play YOUR MONEY jingle. Why don't you play us out while I say good- bye to my audience?

FOREMAN: I will do the best I can. Ali.

VELSHI: All right. Tom Foreman thanks a million. That wraps it up for this show. What a great way to end it. You can join our running conversation on facebook at twitter at Alivelshi and at Christineromans. Make sure you join us every week for YOUR MONEY, Saturday's at 1:00 pm, and Sunday's at 3:00. Log on 24/7 to Have yourselves a great weekend!