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Getting an MBA in China; Chrysler Pays Back Loan; Taxpayers Fund Tax Delinquents; Institutions Linked In; Defensive Investing
Aired May 29, 2011 - 17:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALI VELSHI, CNN HOST: It's the economy, stupid. Or is it? I'm Ali Velshi. Welcome to YOUR MONEY. 82 percent of Americans say economic conditions today are poor. So, if history is a guide, President Obama should have a tough time convincing voters to give him another term next year. Candy Crowley, chief political correspondent and anchor of "State of the Union" is with me. Why are more Republicans not lining up to take this president on in 2012?
CANDY CROWLEY, CNN HOST AND CHIEF POLITICAL CORRESPONDENT: Well, I think there are a lot of individual reasons for individual candidates who decided not to run. But I have to tell you, you know, you look at those figures, Ali, and you think, whoa, the president is in for a rough reelection ride. Should he get it simply because -- if that many people think the economy is poor, that certainly is not going to help him at the voting booth.
But here's the rub. They don't actually blame President Obama for the economy. 55 percent of Americans blame George Bush. Just 30 percent blame President Obama. So he is running counter to conventional wisdom in that people still blame President Bush and I think, by extension, republicans for the current state of the economy.
So I don't think it's the -- while it looks like a great number and republicans ought to be jumping in and saying, oh, wow, the President is really vulnerable, when you look inside the numbers, he is less vulnerable than that would imply.
VELSHI: Let's look at some of the republicans - notable republicans who have said "no". Just in the month of May for running for the GOP nomination. These are the names we all know. Jeb Bush, Donald trump, Mike Huckabee. But let's focus on two others. Indiana Governor, Mitch Daniels and House Budget Committee Chairman, Paul Ryan. Two guys associated with money, both present clear contrast to President Obama's view of how to fix this economy in the United States going forward.
Candy, do conservatives fear that they simply don't have a message that is going to resonate with voters on a national stage when it comes to the budget or particularly Paul Ryan's plan to overhaul Medicare, which does not seem to be gaining traction?
CROWLEY: I think conservatives are more worried they don't have the messenger. They firmly believe they have the message. But, look, this is kind of what we were just talking about. Mitch Daniels decided not to run not because he happens to think that he can't beat President Obama. He decided not to run because he's got some real family considerations there, a wife and children that really don't want to be exposed to the limelight. They've had, at times, a very rocky marriage that ended in divorce and a remarriage. They didn't want to be out there.
You look at Paul Ryan. He, right now, is a very powerful republican.
CROWLEY: He's very young. He could run at some other time. Remember when Barack Obama ran and was a candidate and everyone said, "Why are you running now, you're so young?" And he said, "You know, it's a timing thing".
CROWLEY: And the Ryan people looked at it and said this is not his time and he's got time.
VELSHI: All right. Good. The messenger is key here.
Mark Preston is our CNN Senior Political Editor. Mark, Republican primary voters in New Hampshire are giving us a glimpse at which candidate they would trust to handle the economy, basically -- look at those numbers. It's basically Mitt Romney at 44 percent and everyone else. Mitt Romney, let's talk about him for a second, Mark. Can he gain the support of the Tea Party, which is really driving the agenda for the Republican Party these days and make himself a viable candidate?
MARK PRESTON, CNN SENIOR POLITICAL EDITOR: Well, you know, Mitt Romney is clearly going to have trouble with certain segments of the Tea Party who are frustrated. They think he's a flip-flopper and they really don't like what he did with health care in Massachusetts. But for Mitt Romney, those are great numbers up in New Hampshire. Mitt Romney sees New Hampshire has a must-win if he wants to win the republican nomination.
And, unlike in 2008, Ali, what we're seeing from Mitt Romney now is he is running entirely on the economy. He thinks that he can be someone who can come in, who can fix it, and turn things around. So, while we heard a lot from Mitt Romney back in 2008 about social issues and economic issues, he's really squarely focusing right now on economic issues.
VELSHI: All right. And those economic issues that matter the most right now are the budget that we've got to deal with for 2012.
Diane Swonk is the Chief Economist at Mesirow Financial. Diane, the hottest topic in Washington is debt and deficits and that's about the budget. But specifically, the countdown to August second, the day that Treasury Secretary Tim Geithner says he can't keep America from defaulting on its loans if we don't raise the debt ceiling. Now, a number of republicans are challenging the notion that not raising the debt ceiling would be catastrophic. Take the politics aside, you're an economist, Diane. What happens both here and in the rest of the world if we do not raise the debt ceiling before August second?
DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: Well, you know, there was a technical default around the debt ceiling back in 1979. And that was just a mistake where they literally used to send out the checks and the checks got there a little bit late -- a day or two late and just from that, without all the politics around it and the game of chicken going on, we saw 60 basis points spike in Treasury bonds from that alone. So, that gives us some warning that this is not something to play around with.
VELSHI: And let me just stop you there, Diane. For our viewers who don't trade in treasury bonds, 60 basis points increase - six tenths of a percent -- affects your credit cards.
SWONK: Almost (INAUDIBLE) percent.
VELSHI: It affects your loans, it affects a mortgage you're trying to get.
SWONK: Yes, exactly. Everything. And, you know, it's really akin -- think of it as an individual. Would you call up your banker and say, oh, by the way, I might or might not pay on my loan in August and I'm going to threaten you with that now, and not think that that would hurt your relationship with your banker? I mean, that's just ridiculous. This is just silly to put this in the middle and play chicken with the debt ceiling as a political leverage point. I don't understand it. No country in the world goes out and tells their debtors they might or might not be insolvent on August Second.
VELSHI: Well, Mark, Diane says it's silly to do that. A lot of people share that view. Who's going to blink on this one?
PRESTON: You know, that's a really good question. And I'm not sure that we have the answer right now. I think bottom line is -- I think we're going to see the debt ceiling raised, right? I mean, the fact of the matter is, when you hear - yes, exactly - when you hear these dire warnings, in the end, Ali, we can have all the political gamesmanship that we have here in Washington, D.C. Right behind me. But the fact of the matter is, something needs to be fixed. Something needs to be done.
VELSHI: Candy, what do you think about this? You have watched every political game being played and, frankly, some of it's not a game. It's the art of compromise. It does seem sometimes that we are hearing from ideological conservatives and the Tea Party that compromise on this isn't on the table?
CROWLEY: Yes, but at the moment, inside the Republican Party when it comes to this issue - and now I'm just talking about the lawmakers on Capitol Hill -- that's a minority. It's a minority saying, "It's not going to make any difference whether we default or not". I will say the Treasury Secretary didn't do the cause much good when he said, "Listen, we're actually -- we went past the debt ceiling here a couple of weeks ago, but I can make it work till August".
VELSHI: Right. Right. I agree with you. That's confusing.
CROWLEY: Sort of feeds the whole thing that, like, it doesn't really matter. But, in the end, there are plenty of folks on both sides, including the leadership, that know that this is a dire need and that they need to do it. Congress expands the amount of time its allotted. So, they will push this up to the very end. But it will get done.
VELSHI: We have learned that. All right. Candy, Mark, Diane, stay where you are. The debt is a major issue for Americans. So are their jobs. Which one is more important? Can you deal with both at the same time? I'll ask this great panel when we come back. You're watching "Your Money" on CNN.
VELSHI: Let's go to Mark Preston right now. Mark, earlier this week, there was a special election in New York in an area that was traditionally republican -- a democrat took that seat. And this budget business, this deficit business, and particularly what the republicans are thinking of doing with Medicare may have influenced this. Tell us about this.
PRESTON: Sure. What we saw up in the special election up in New York State is that democrats did a very good job of trying to convince voters that the fact that the republican proposal here in Washington -- that Paul Ryan proposal -- would really strip Medicare as we know it -- as it is right now. He put the fear of God into a lot of voters.
Democrats were also successful in getting the turnout -- getting more democrats to turn out. Now, this is a traditionally republican district, Ali. Republicans should have held on to this seat. But they were not able to. But it really does have greater consequences on republicans talking about trying to fix things in the long term, but really understanding what are the political consequences by doing things that are unpopular, such as attacking entitlements as voters know them today, such as Social Security and Medicare --
VELSHI: Diane, this is not entirely unlike some of the discussions that have gone on in Europe. When we talk about entitlements in Europe, there were things that people expected to get - counted on getting -- and the government said, "We're in too much trouble, you're not going to get those same things". And they were rioting in the streets and it's hurting their economies. How does that compare? Should this be a warning signal to us?
SWONK: Well, you know, it certainly is a warning signal. It's a shot over the bow. Though, the U.S. Is in much better shape. Certainly, yesterday, I was in D.C. talking to many senators that are working on bipartisan long-term structural deficit reduction. And it's interesting how they won't talk about the details because don't want to politicize it. Which I think is really hopeful.
That said, you know, one of the things they were talking about is what's going to happen in Britain? Britain has done major austerity programs and now they're paying the consequences on their economy right now. And they had to do that because they had no choice. They pushed it to the limit and they got a downgrade on their debt.
SWONK: They were facing higher interest payments. We don't want to go there. And there was a real comment that sort of inspired people. We don't want the brits to outdo us when they're in a worst position than we are and we have got some opportunities. So, I think that there is sort of some movement here to think that we can probably get something done. But the politics of it -- the confusing of the short term, the debt ceiling, the long-term structural stuff - they're two different issues and it's now starting to be separated in Washington.
SWONK: And I think that's good news.
VELSHI: OK. Well, Candy, you are an expert at this. You have covered politics for so long and you have to, every Sunday, ask people complicated questions about this. And the one frustrating part that makes me want to pull my hair out is that people are not yet talking about specifics about how to curb our long-term spending. Everybody's got numbers about how much they want to cut. But, when it comes down to specifics, as we saw in that election in New York, voters may not go with the republicans on this.
CROWLEY: Well, yes. And especially in a lot of ways, it depends on a sales job and the republicans say, well, we've framed this wrong. But you're also seeing republicans beginning to back away from this. Listen, there is a commonality of purpose, if you will, I think. Now, you can question the will. But there certainly is a commonality of purpose between the two parties. They all know that they have to do something about the debt.
SWONK: That's right.
CROWLEY: But, to ask politicians to not politicize an issue in an election cycle is just too high a climb. It is going to show up in elections like the special one. It will show up next year.
CROWLEY: And the question is -- and I think this is key, to me, on why they don't have this debt-ceiling thing and this debt -- some kind of debt package together, is the American People haven't clamored for it.
VELSHI: Ah, that's a good point.
CROWLEY: Nobody goes home and someone says, "Hey, lift the debt ceiling". And you know why? Because no one's explained, over and over and over again, which is what you have to do when you're a politician, what the price of not lifting that debt ceiling is going to be. No one has explained what the price of that long-term debt is. VELSHI: Mark has seen this in our polling. Mark, you've seen -- people want to lower the debt ceiling, they want to get control on spending. They want to balance the budget, but they do not want their entitlements cut, they don't want services cut. There really is a disconnect here. You can't have both.
PRESTON: No, you can't have both. I mean, let's compare it to this nuclear power. Not in my back yard. So, when it comes to entitlements, not if it's my entitlement, Ali, right? So that's what people are saying. Yes, people are looking further down in future generations saying, we don't want to put the burden on our kids and our grandkids. But you know what? We don't want our Medicare cut. We don't want our Social Security cut. So, that's why you have all this posturing here in Washington. And, as everyone has said on this panel -- and they're absolutely right -- nobody is going to be giving specifics because it's going to hurt them in the short-term. And the short term for them, right now, is the 2012 elections.
VELSHI: Diane, from a nonpolitical, economic perspective, what is the solution to economic growth, to debt reduction and to creating more jobs?
SWONK: Well, I think the key is not doing too much up-front but having a plan that, over the next 10 to 15 years, phases in on both the revenue and expenditure side. Economists are agreed on this. Ideologically, republicans don't want to raise taxes. Democrats want to raise taxes and not cut into spending.
The reality is it has to be on both sides of the balance sheet. That's how it's done. But you can do it phased in over time, so you actually get a better tax code. Who needs a complicated tax code like we have? Particularly, corporations -- don't we want them bringing the jobs back here, instead of booking their profits abroad? We all now agree -- there is some consensus moving on the tax code reform. And I think that's positive. That's what we want for long-term growth is to bring in -- rein in some of our spending, but also deal with the revenue side -- a more reasonable and reforms to tax code. But it does mean some people would pay more taxes as well. That's hard, but if you make it a cleaner tax code, I think there's a lot of benefits to that as well.
VELSHI: The three of you are all compromisers and all logical. None of you have a future in politics. Candy, Mark, Diane, thanks so much.
SWONK: No, never.
VELSHI: We'll talk to you all again soon.
Listen, an MBA can go a long way toward helping you work toward that dream job and a dream salary. And we're going to show you just how far some people are willing to go to get their MBA next on "Your Money".
VELSHI: Everybody's looking for an edge. And when it comes to education, some people are getting that edge by traveling around the world. They're taking note of China's growing economy and heading there to get their degrees. CNN's Eunice Yoon has the story from Beijing.
(BEGIN VIDEO TAPE)
EUNICE YOON, CNN CORRESPONDENT: Pennsylvania native, Eric Sidner (ph) is studying to get an MBA at his top choice school. The 33-year-old entrepreneur thought of applying to an Ivy League, but instead chose to take classes here - in an up-and coming program in China.
ERIC SIDNER (ph): A lot of energy is happening in the Chinese Markets. And a lot of the big-name companies, the MNCs, are setting up their bases here.
YOON: With the U.S. Market depressed, more Americans are looking for jobs outside the country. China is a popular place for students like Sidner (ph) and fellow American classmate, Denise Pu (ph), who both want to get closer to a burgeoning market. She turned down a spot at Columbia University in New York to study at this China-based international business school. A degree the Californian banker hopes will give her a leg up if she stays here or returns to the evolving marketplace back home.
DENISE PU (ph): I started to realize, hey, most of my clients are Chinese. Most of my business clients are also Chinese businesses either coming to expand their business in California or American companies that want to go to China to expand their business there.
YOON: The number of MBA programs here has skyrocketed from six to decades ago, to nearly 250 today. Some programs almost half-full of students from overseas.
School officials admit the starting salaries of their graduates are lower than those from American schools. But they say their programs offer something that money just can't buy -- real-world China experience.
PU (ph): Learning with my Chinese classmates. Speaking Mandarin. I've also gone to a couple of interviews with some local banks. I had to be interviewed in Chinese. And I think it's not the kind of experience that I would have gotten back in the States.
YOON: Sidner (ph) is optimistic about how the networking will help build his career.
SIDNER (ph): Whether I decide to stay here and work in China or go back to the United States and work for a company in a way that would allow me to liaise between China and America - I think there's opportunities for both.
YOON: But, for now, to these students, China is the better bet to get an education and make money.
(END VIDEO TAPE) VELSHI: And, Eunice, you join us now from Beijing. Eunice, your subjects in that story talked real-world Chinese experience. Real- world China experience. How much does that mean in the real world?
YOON: There is a concept here in China known "guanxi", or social networking. And it's a really important part of Chinese business culture. So, the students that we spoke to said that here they get the opportunity to really meet with lots of different people from various businesses across industries, both on and off campus.
They also pointed out that they got a chance to share and swap stories with their Chinese classmates, who gave them a little bit more insight into the Chinese way of doing business. So, one example was how to pitch a business idea to your boss, which is a bit more subtle and a bit more complex than it is in the West. One student actually said to me, you hear about the stuff all the time, you read about it in the books, but it's really different from daily interaction with people who have the experience themselves.
VELSHI: All right. So, if somebody's watching this and they can't really travel or live overseas, but they want to sort of tap into this Chinese economic growth, what can you recommend to students in that position?
YOON: Well, one of the other options that a lot of the students here were weighing was whether or not they should go for a program back home that has a strong international track. So, that's another option that people can really consider. These programs have excellent professors. They also oftentimes, as part of their curriculum, have some overseas trip. So the point is that they should try to get as much exposure as they can to the market that they're interested in order to try to make themselves as competitive as possible for that next job.
VELSHI: Eunice, great advice. Eunice Yoon is CNN's Beijing Correspondent.
Last week, we had an exclusive interview with Elizabeth Warren. This week, she came under attack by republicans. Why it happened, and whether or not she can overcome it to run the Consumer Financial Protection Bureau, next.
VELSHI: Welcome back to "Your Money". Christine Romans, host of CNN's "Your Bottom Line" joins me now, along with Chrystia Freeland, Editor of Thomson Reuters Digital, and Richard Quest, host of CNNI's "Quest Means Business".
OK. If you saw the show last week, you caught my conversation with White House Special Advisor Elizabeth Warren about some of the steps she wants to take to protect consumers. This week, Elizabeth Warren found herself under attack by republicans as she testified before the House Oversight and Government Reform Panel. Listen.
(BEGIN VIDEO CLIP) PATRICK MCHENRY (R), NORTH CAROLINA: So, it's gone beyond your advice to treasury. You're also providing advice to other governmental agencies?
ELIZABETH WARREN, ASSISTANT TO THE PRESIDENT AND SPECIAL ADVISOR TO THE SECRETARY OF THE TREASURY, CONSUMER FINANCIAL PROTECTION BUREAU: Congressman --
MCHENRY: Understand, you could use the word congressman a number of times, Ms. Warren, but I'm simply asking a very simple question.
UNIDENTIFIED MALE: Is there a duty to educate yourself? Yes, or no?
WARREN: I believe that an empowered consumer is a consumer who cannot only protect himself or herself but one who can change the market.
UNIDENTIFIED MALE: Mr. Chairman, I give up.
(END VIDEO CLIP)
VELSHI: Chrystia, Elizabeth Warren gets grilled like she's a Wall Street fat cat for wanting to set up the Consumer Financial Protection Bureau, which will hopefully protect consumers from the great recession and the financial crisis that we have. What is it about Elizabeth Warren that gets republicans so fired up?
CHRYSTIA FREELAND, EDITOR, THOMSON REUTERS DIGITAL: I think it's probably three things. The first thing is Wall Street hates her. Elizabeth Warren really was the person who came up with and spearheaded this idea of a Consumer Protection Agency. And if it really gets up and running, it will cut into the profits of big banks and it will give them less room for maneuver. So, they don't like her. And politicians who are close to Wall Street don't like her.
VELSHI: And, at the moment, there are 44 republicans who are in some fashion trying to either hold up her appointment or take the teeth out of the agency, Christine. It's weird to me that they're setting this up as a position. It's going to backfire on them.
CHRISTINE ROMANS, CNN HOST: Well, here's the thing -- she's an outsider. I mean, she's an outsider in that she's representing consumer interests in a place where a lot of people say there weren't consumer interests represented long enough. Because she doesn't play the game or hasn't played the game for years, there's not that usual horse-trading that happens behind closed doors, the little give, the little take. It's just Elizabeth Warren trying to say what she thinks should happen with this agency. And that's part of the thing -- the thing that makes her attractive is that she's an outsider, is the thing that might make her ineffective.
VELSHI: Richard, what happens outside the United States? Is somebody who stands up for consumer protections an outsider? Do these things happen better in other places than in America?
RICHARD QUEST, CNNI HOST: Not really. In terms of the parliamentary way in which they get beaten up -- we had an example of that this week where the minister responsible for the Coast Guard, of all things, managed to get beaten up before a parliamentary select committee. Look, politicians play to the peanut gallery when they get somebody in front of them. And they puff up their chests. And they say that they are the voted, elected representatives of the people, and how dare you have the temerity to sit in -
VELSHI: That's exactly what happened here.
QUEST: How dare you have the temerity -- and do you not now you are infringing -- and on and on it goes. If it wasn't so comical, it would actually be serious because these are the very same people who will happily talk the hind legs of a donkey given have the chance.
And they are the very same people who will not given a yes or no answer when asked on a matter of policy, but put them on a panel and they're off to the races.
VELSHI: Good to know we're all exactly the same around the world. Richard.
CHRYSTIA FREELAND, EDITOR, THOMSON REUTERS DIGITAL: Can I just jump in quickly. I agree with Richard about the theatre and I do think politicians are drama queens wherever you go.
But on consumer protection, actually when it comes to financial products, American consumers have less protection from the government than consumers in a lot of other countries.
Ali, our own native Canada has aggressive protections on what consumers can do in terms of financial products. Now some people might say that's actually a restriction.
VELSHI: It is.
UNIDENTIFIED FEMALE: It is. But it saves you from yourself. And that's the debate going on right now with Elizabeth Warren.
VELSHI: I'm very curious as to how this one plays out. Taking the sides against consumer protection is going to come back and haunt somebody in an election commercial at one point.
Hang on, Richard, for a second. I want to talk to you about something else. The times of stuffing money under a mattress for a rainy day seem to have been long gone. It's over the days of savings.
While we've been seeing the savings rate tick up in the United States, a new study by the National Bureau of Economic Research shows that 50 percent of Americans would struggle to come up with $2,000 in a pinch even in a minor emergency like a home repair.
Christine, this doesn't jive with what we've been seeing for two years now. The savings rate is being increased in America, which means to me those who have some money are saving more and there are a whole lot of people, half of the population, who are saving nothing.
CHRISTINE ROMANS, HOST, CNN'S "YOUR BOTTOM LINE": Look, we know, Trans Union Credit Card data this week also showed that people are paying down their credit card debt. But paying down your debts and de-leveraging your personal balance sheet doesn't mean you got a lot of money saved yet and enough money saved.
What happened, Ali, was the housing bubble and a housing bubble we are still feeling. People haven't built up the cash cushion well enough yet. And when you're talking about rising health care costs, the longer you're going to have to work before you retire.
The rising cost of education, rising cost for all the things you put to feed your family -- it's really still a very serious situation for American families.
VELSHI: Chyrstia, Is this a behavioral problem or is this just a sign of the economic times?
FREELAND: I think it's more a sign of economic times. You know, I mean, as Christine says people had a lot of debt. They're still paying that off.
And if you are unemployed or not as employed as you would like, so not working full hours, or working at a job at the bottom of pay scale, it's really hard to save up that $2,000.
VELSHI: OK, Richard, I have a story specifically for you here because it's a real treat to have you here working as opposed to on one of those several vacations you take.
Americans are not savers, but we are workaholics. A survey from expedia.com shows not only do Americans get less vacation than everyone they also don't seem to take the vacation they get.
Richard, what's going on with the rest of the world? Are you all just lazy?
QUEST: No, no, no, stop that now! Reverse the question, Ali. What's wrong in the United States? You are archaic. It is primeval. It is medieval, the way in which people get two weeks' vacation and even then feel guilty about taking it.
Ask any CEO, do you want a workforce that is rested, engaged and focused? And then ask them, how do you expect people to do that if you let them have ten days' vacation a year?
Yes, Ali, in this room behind me, everybody gets up to five weeks vacation including national holidays, paid vacation -- don't do that. Don't do that.
VELSHI: My word, as you would say. That's smashing. You know what, I think it's time for us to gang up on Christine because you're British. Chrystia and I are both Canadian, again, rules in Canada are very different. Much more liberal in terms of vacation. So, Christine, explain yourself and countrymen.
ROMANS: Ali, we love to work in this country. We really do, but there are also some analysis of that same - Richard, please. There are some analysis of that same data that shows in some cases it's because people don't want to spend the money on a vacation.
I guess they could stay home and take the day off, but they found that, you know, they really don't have the money to spend to go away. So they might as well be working.
FREELAND: The other thing for me that's interesting about Americans and leisure is that the rich work as hard or harder than the poor. It's not just about money. It's, you know, people at the very top are working some of the longest hours.
VELSHI: Back to you, Richard, seems like you're just lazy.
QUEST: Well, there is some calvinistic and presbytarian about it. The American, you do feel that you have to earn your vacation and only after you've been there for goodness knows how many years and even then you're terrified that the boss might notice.
Look, the one thing I've noticed having been to France, Italy and Spain where people denigrate their work ethic, the fact is their productivity is very high. They just don't do work for work's sake.
So they don't have to be at work at 7:00 a.m. so it looks good to the boss and they go home at 6:00 because the work is finished and they don't feel obliged to make it seem as if they're just working every hour in good sense. How many of us around this table now has answered an e-mail between the hours of 11:00 and midnight?
ROMANS: Ali's doing it right now.
FREELAND: Yes, of course!
VELSHI: All right, Richard, you win. We're all taking a vacation after this show is over. Richard Quest, stay right where you are. Chrystia Freeland, stay right where you are. Christine Romans, we need an American on the panel so stay right where you are as well.
LinkedIn made a huge splash last week with their initial public offering. The company went public. Why big financial institutions got first dibs on the stock and why you were likely kept out of the loop, up next.
VELSHI: Back now on YOUR MONEY with Richard Quest, Christine Romans and Chrystia Freeland. Chrysler has paid back $7.6 billion worth of bailout loans to the government, the Canadian government and the U.S. government.
Talk about the bailout leads to Washington which, of course, leads to politics. Democrats were quick to spin the news in their favor. A Democratic National Committee blog praised President Obama instead of Republicans, quote, "good thing Mitt Romney, Tim Pawlenty, Newt Gingrich and other leading Republicans weren't in charge. They would have simply let Detroit go bankrupt," end quote.
Christine, is it true? Did the heroic Democrats save Chrysler from the evil Republicans who were going to let them wither on the vine?
ROMANS: Some supporters of Mitt Romney were saying, look, you know, this is what he had been pushing for all along, a controlled bankruptcy of Chrysler so that, you know, you could let this whole thing work out.
When you have both sides taking credit for it, Ali, I think it's really interesting too that just a couple of years ago bailouts were a dirty word. Now you have fighting in political circles about who gets credit for the bailouts.
VELSHI: -- the dirty words to a lot of people, they just happen to think this auto one worked up. Do you remember at the time, it was entirely likely, Chrystia that it wasn't going to happen.
FREELAND: And actually, Ali, I would push back a little bit against this sort of "he said, she said" interpretation of what happened. This was a controversial and politically difficult thing for the White House to do.
It was definitely led by the Democrats. It is definitely going against the really strong prevailing Republican ideology and the fact is it actually works. This intervention by the state saved two companies.
VELSHI: The Bush White House at the time, the outgoing White House did support the idea. Mitt Romney has got deep roots in Michigan, also supported it. How did it play for you, Richard?
QUEST: Well, basically, the U.S. government ended up being the lender of last resort and taking the place of a failed banking system. The banking system, they could have picked up the slack.
The truth is if you look at the TARP overall, most of the money from the TARP, absent AIG, has been now paid back with profits and with interest. But that -- and everybody says TARP was a brilliant idea and hip, hip, hooray.
But, of course, the recession that came as a result of the crisis was so bad that so many other costs -- Detroit had been allowed to go to the wall. The unemployment benefit, the health care costs, all the attendant costs that would have gone with that would have dwarfed, dwarfed the seed capital that went to Chrysler.
VELSHI: That is far too nuanced a way of looking at things, Richard. Parsing it, you know, putting it all together and seeing how it fits into the big picture.
Look, a new report from the Government Accountability Office shows that billions in stimulus funds, while we're talking about that kind of thing, went to contractors that owe the government $757 million in back taxes.
About 5 percent of all contractors who got stimulus money are now delinquent on their taxes. These are the projects designed to build roads, create jobs. Chrystia, do you think taxpayers got a raw deal on this?
FREELAND: Sure in these specific instances, absolutely. Having said that, on balance, was the stimulus a bad idea? No, absolutely not.
And, you know, if you look at the countries, which really cut back sharply in the teeth of the recession, their economies are much weaker than the U.S. economy.
QUEST: No way. You can't let that go along. The fact is --
FREELAND: You're in Britain. You guys are in huge trouble.
QUEST: We're cutting back now because we have a budget deficit of 10 percent, which can no longer be sustained.
FREELAND: Sure it could be sustained.
QUEST: If we didn't -- and we'd end up like Greece or Portugal or Ireland where the bond market would make its own judgment. The 10- year --
FREELAND: In contrast with those countries, Britain issues debt in its own currency. You know the parallel is not exact.
QUEST: And indeed, -- our own currency and we also issue elongated debt, which, of course, is not so bad. But Greek debt - let me ask you, why is Greek debt at over 17 percent when the Greek financing for the next year or two is guaranteed by the ECB and the EU?
The fact, of course, is simple -- because they still haven't taken the necessary measures to bring the deficit credibly under control.
VELSHI: To bring the conversation back to where we started, I think I'm getting agreement from everybody here that regardless of the fact that these back taxes are owed, that should not be used as a justification that it shouldn't have happened?
ROMANS: And I would go on further and tell you that at the time, remember there were overseers of the stimulus who were saying they expected 7 percent waste, fraud and abuse.
So if you got -- I'm not condoning it. I'm saying it really is rotten that someone would take my money and put it in their pocket. But at the time, the goal was to get as much money working in as many different ways as possible as quickly as possible because that money even if it's is some pockets is still at work somehow in the economy.
QUEST: Keep your eye on the big picture. On these vast programs there's going to be a bit of waste. There's going to a bit of finagling and there's going to be a bit of money going underground --
VELSHI: Richard Quest, our big picture guy today. All right, social networking site, LinkedIn, debut its IPO, it's initial public offering, last week reminding many of the days of the tech boom. Take a look at this. The stock priced -- what they offered it out at, at $45, but that's not where it opened. It opened at $83, quickly jumped above $100 a share, but the celebration prompted many questions.
It is institutional investors, not us, who get access to the $45 IPO price. A company like LinkedIn pays for extensive research to be done to set that price. A company always wants to set it at the right place for one reason or another. Investors felt that shares of LinkedIn were clearly worth way more than the $45 it came out at.
Richard, three explanations, you tell me which one likely fits best. First, a case of incompetence, the price they set at $45 was just wrong. It was too low? Two, it was a case of cronyism where the game is rigged for inside players who got an $83 stock for 45 bucks?
Or the last theory that's floating around, the price of $45 was right, but the fervor to get in on this IPO like the tech boom that we went through drove shares to irrational levels? Which one was it?
QUEST: A combination of number one, they were incompetent in setting the price, and number three, they just got it wrong and there was much greater demand.
There were only 7 million shares offered up. It doesn't surprise me. You want a nice pop on an IPO, a stag price. You want 10 percent, maybe 20 percent. They got 100 percent. It's not as bad as Linux in 1999 --
QUEST: -- which got nearly 700 percent --
VELSHI: Make us think about the tech booms. Average investor who gets in on that first day no matter what that thing costs.
ROMANS: Richard did not say cronyism. I'm not sure because, you know, I think there are a lot of insiders who got a chance to get in on that. We would never be able - I never count on a little bit of cronyism on Wall Street. I would say it's a blend of all three of those explanations.
FREELAND: I think that actually it's mostly number three. I think that the bankers were genuinely surprised. I think in their heart of hearts, they probably think that LinkedIn isn't worth quite as much.
VELSHI: Maybe it's worth the 10 percent that Richard talked about or 20 percent more, but they priced too well and people are just too eager to get a piece of the action?
FREELAND: Yes, and I think we are at the beginning of a real, well, maybe in the middle now of a real boom in internet tech stocks. We saw this week with the Russian search company also having a really successful IPO. So I think that they were just, you know, surfing a wave and the wave went higher than they thought. The other important point to note is for the actual owners and founders of LinkedIn, you might think, did these guys get -- I was going to say screwed -- did they get screwed by Wall Street?
Actually I think the answer is not so much because the truth is they still own most of the company. This has made them one of the sexiest companies on the street and actually I don't think they're that unhappy with their bankers.
ROMANS: I was just trying to figure out how to price these things. I mean, it is like a little bit in 1999 --
VELSHI: Well, Chrystia calls it a boom --
ROMANS: We don't know how to price these?
VELSHI: All right, we'll continue to talk about this folks. Thanks for joining us, Richard, Chrystia and Christine.
The markets are up, the markets are down. It's not necessarily an investing atmosphere if you are faint of heart. So I'm going to show you how to defensively invest your money next.
VELSHI: Well, May has been somewhat of a seesaw month for the stock market, but there are steps that you can take to invest if you want to do so cautiously.
Jim Awad is the managing director of Zephyr Management. Jim, economic uncertainties like the slow recovery and Europe's debt problems and the end of the fed's bond-buying spree, they're heating up fears about where the market is heading.
And we've had a rough month in May. The Dow is down by the end of the month probably about 3 percent or 4 percent. Are you worried about that?
JIM AWAD, MANAGING DIRECTOR, ZEPHYR MANAGEMENT: Well, you have to say there's a lot that could go wrong. Cyclicly you still have tail winds the emerging markets and the United States. You are growing.
But there's a lot to worry about and I think an investor has to look at possibilities either the market going up or not going up and position yourself for each eventuality depending on what your opinion is.
VELSHI: But that doesn't mean not investing, necessarily?
AWAD: No. I think there's not a case for being overly bearish, but there is a case for being more conservative than has been appropriate for the last two years.
VELSHI: OK, let's talk about -- we often talk about exchange traded fund, which is a basket of stocks. You like SPY which is the S&P 500.
AWAD: Right and basically what I'm saying is the recovery of the last two years, small stocks have done phenomenally well because they are the ones that got hurt the most when the market went down. They're the ones who recover fastest when the economy recovers.
VELSHI: Because they're nimble.
AWAD: They're nimble, but the stocks also tend to be very volatile. When they go up, they go up more than you expect. When they go down, they go down more than you expect because it doesn't take much money to move them either way.
AWAD: And so with the phenomenal move in small stocks, I mean, just take a look in the month of May small stocks are down more than big stocks.
So I would say to the extent that you want to position yourself a little more cautiously, you would sell small stocks and go into big stocks that have a global footprint, good balance sheets, less leverage, pay some dividends and that would allow you a way to stay invested, but stay invested more conservatively.
VELSHI: And we'll look at this, the S&P 500, the one year change on that market. While it has dipped a little bit is a 23 percent run. Let's talk about gold. A lot of people continue to worry about inflation. They worry about the U.S. dollar. You have picked an ETF, Exchange Traded Fund with the sicker symbol IAU. Tell me about this.
AWAD: OK, so basically what you're saying here is that if anything can go wrong, the most likely thing to go wrong is debt, most likely in Europe. And so people, if that happens, if there's a problem, people aren't going to want to own debt. They're not going to want to own currencies.
There's a large percentage of the world that goes straight to gold, particularly in emerging markets. In India, that's what people buy. So a cheap direct way to buy it is through this ETF. It's constructed to track the price of gold bouillon.
It's got a low cost, it's liquid. You can get in and get out. And so I think for the average investor, if you want to own gold, to hedge yourself against uncertainty, this is a good way.
VELSHI: Well, the one thing to keep in mind, when people are looking for an Exchange-Traded Fund, you can do this one, which tracks gold or you can do others that are a basket of gold companies.
AWAD: Right, absolutely. I'm not opposed to either, but this is the most leveraged to the price of the metal itself.
VELSHI: Right, this is the way to absolutely do that. Again, as I know you've always recommended though, the average viewer should be diversified. AWAD: Absolutely. You should have an asset allocation, review it regularly and rebalance periodically so that you're not extreme in your investment view. The reality is a lot of blocking and tackling down the middle. That's how you make money.
VELSHI: Jim, always great to see you. Thanks so much.
AWAD: Thank you.
VELSHI: Jim Awad, a good friend of our show.
Look, are massive spending cuts the key to saving the economy? It's a tough question, but perhaps the answer can be found in Europe or in my XYZ, which is coming up next.
VELSHI: Time now for the XYZ of it. This week President Obama was in Ireland raising his glass of Guinness and toasting the country's fighting resilient spirit. What you didn't hear much is about the sheer pain the Irish people have been experiencing lately.
The country has been cutting spending for more than two years now and the government had to impose savage austerity measures as a condition of accepting an international bailout last year. Now while we consider austerity measures here in the United States as a way to cut spending without increasing taxes, it would be instructive to see what's come of the Irish belt-tightening.
As is often the case in austerity programs, Ireland's economic growth has slowed and its debt has actually mounted. Its unemployment rate has soared. It's now approaching 15 percent. It's the same across Europe, Greece, Portugal, Spain, even the U.K. All of these countries have adopted some measures of austerity to get their rising debt under control.
Economic growth has been anemic at best and the pain has been acute, bad enough to spark violent protests in some of these nations. Some conservatives in the U.S. including members of the Tea Party are calling for European-style austerity measures here in the United States.
Those calls are going to get louder as the debt ceiling fight comes to a head in the coming weeks. Well, I trust they'll set ideology aside and look at the lessons of Europe. It's crucial to cut the debt in the medium and long term, but doing so before real economic growth has a chance to take root could jeopardize a real recovery.
Cutting too severely and too quickly could lead to higher unemployment. What's really needed now is compromise, something that's in very short supply these days. The clock is ticking on the debt and America's AAA credit rating is on the line.
Let's hope our elected representatives can put the partisan politics aside and get us back on sound fiscal footing without derailing this fragile economic recovery. Because while we could all use the luck of the Irish, we don't need the kind of luck they're experiencing right now.
That's it for me. Thanks for joining the conversation this week on YOUR MONEY. We're here every Saturday 1:00 p.m. Eastern and Sunday at 3:00 p.m. You also can catch Christine Romans on "YOUR BOTTOM LINE" Saturday morning at 9:30 a.m. Eastern. Stay connected 24/7 on Facebook and on Twitter. My handle is alivelshi. Have a great weekend.