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Romney's Taxing Problem; Powering America; Man with a Plan; China Rising; Protecting Your Money; The Super Rich versus Everyone Else; Battleground Bus Tour

Aired October 20, 2012 - 13:00   ET


ALI VELSHI, HOST: You want lower taxes. Mitt Romney says he'll cut everyone's taxes and he'll lower the deficits. Wow. Now that would be having your cake and eat it, too.

I'm Ali Velshi. This is YOUR MONEY. And as long as folks running for office won't tell you the truth about the economy, I will.

Here's the problem with Mitt Romney's math. He slashes personal income taxes by 20 percent across the board. The cost of doing so will be $5 trillion over 10 years.

OK. So that's less money for a government already deep in the red. One that assumes that makes the deficit worse, right? Wrong says, Mitt Romney. He'll pay for that tax cut in two ways. First, he'll limit the tax breaks that the wealthy can take which, according to the nonpartisan Tax Policy Center, could cover up to $2 trillion of the projected $5 trillion cost.

Second, Romney says he can make up the difference by spurring economic growth because people will spend all that money that they're not using to pay taxes. Well, it's not entirely clear that that will happen. And if it does, it's not entirely clear how much economic growth that will produce.

What is clear is that the measly 1.3 percent economic growth that the U.S. achieved in this third -- the second quarter of this year isn't enough to make up for the Romney shortfall and with the U.S. economy forecasted to grow by about 3 percent in 2013 and 2014, Romney's plan, as attractive as it sounds, is in doubt.

Kevin Hassett is an economic adviser for the Mitt Romney campaign and the author of some of the Romney's economic plans.

Kevin, Romney's plan seems to assume that the simple act of lowering taxes will generate enough growth to raise the revenue to pay for the steep cost of those cuts. But a lot of economists disagree with that notion. It's a classic chicken and egg scenario. I talked to former U.S. Treasury secretary, Larry Summers, a couple of days ago. He can't get the math to work either.


LARRY SUMMERS, FORMER ECONOMIC ADVISER TO PRESIDENT OBAMA: It's easy to have an attractive tax plan if your campaign staff can make it up. But the reality is that every expert who's looked at it has found that cutting taxes by 20 percent costs $5 trillion.


VELSHI: OK. Let's just get down to this. We understand that there will be -- there will be certain revenues that will come in. There will be certain revenues that are lost. And there is a certain amount of growth that will come from the fact that you let people keep some of their money.

The issue is how much more growth to you get from that? Am I right? I mean the issue is how much better is the economy off --


VELSHI: -- because you have given everybody a discount on the taxes that they pay? And that's what we're trying to get to.


VELSHI: We can do the math better if we -- if we knew exactly what that benefit was going to be.

HASSETT: Look, look, Ali, this is something that economists have been studying for a long time. You know, Alan Krueger, who's the current chairman of the Council of Economic Advisors for President Obama, he surveyed economists and they said that something like the Romney plan, they were actually talking about the 86 Tax Act after which the Romney plan is modeled to deliver .5 percent to 1 percent a year higher growth than in the medium term.

There is a 2006 joint tax committee study -- that's a very nonpartisan organization -- that also gave a 23 percent across the board rate cut that was balanced by, you know, getting rid of these tax expenditures. A score of about 1 percent a year growth as well. And so if you could actually move there, I don't think that there's a lot of dispute that we get higher growth.


VELSHI: So you're saying -- you're assuming they --

HASSETT: Will they really make the tough choices?

VELSHI: So you're assuming the baseline is about 3 percent economic growth and you're saying this could goose it by 1 percent getting us to about 4 percent which could now start to lend itself to making sense?

HASSETT: Yes. I mean that's -- I don't know if the baseline is 3 or 2.5 percent right now.

VELSHI: Right.

HASSETT: And certainly we would kill for 2.5 percent growth this year. VELSHI: Yes. Yes.

HASSETT: But yes, I think that relative to baseline, we ought to be able to get a percent a year. And that's where the 12 million jobs come from.

VELSHI: Right. OK.

HASSETT: It's just simple math.

VELSHI: Christine Romans is the host of CNN's "YOUR BOTTOM LINE."

Christine, you studied this Romney tax plan as much as can you study it. And that's part of the problem. There are some assumptions -- Kevin, help us out here -- with some that -- some that are missing.

CHRISTINE ROMANS, HOST, CNN'S YOUR BOTTOM LINE: And I've studied the study studying the study.

VELSHI: Right. Right.

ROMANS: And what we know here, we know that this is --


ROMANS: We know and Kevin knows exactly what I'm talking about, we know that there is a framework here. We know that Mitt Romney is saying and his team is saying, look, we -- I want to lower your taxes. I want to lower everyone's taxes. I do not want to raise taxes on the middle class.

And when you look at the Tax Policy Center in particular and how they look at these buckets of deduction that's Mitt Romney talks about.

So, Kevin, if you repealed all itemized deductions, you come up with $2 trillion over 10 years. So you look at the buckets that Mitt Romney is proposing he would have in his tax plan is $17,000 cap on deductions. That would raise only $1.7 trillion, 25,000 -- you get the picture. 50,000, only $763 billion.

How do you make -- it's just economic growth enough to make it up -- make up the rest of it?

HASSETT: No, no, you don't need economic growth at all. They took a whole bunch of stuff off the table. You know, Governor Romney is drawing lines in the sand. But again, there are about $2 trillion worth of tax expenditures a year you could potentially draw from. Now Governor Romney doesn't want to lift taxes on capital gains and dividends. That's a little chunk of it. But there's a heck of a lot of stuff left over. And that's why, you know, Harvey Rosen and Marty Feldstein, my colleague here at AEI and Matt Jensen have all done some analyses that show that even before you get to growth you can get really darn close.

VELSHI: What would you --

HASSETT: But let's not forget that --

VELSHI: What are those things that you're talking about?


VELSHI: You've got to give some examples.

HASSETT: OK. Let me just make one last point that if you came up short -- excuse me?

VELSHI: Give me a couple of examples. What are -- what some of the things you're talking about where you can make it up?

HASSETT: Yes, so, for example, you could -- you could just put a cap on all deductions other than the things that affect capital income as Governor Romney saying maybe 17,000 bucks. And then, you know, all the things that are in there that narrow the base would then be limited, depending on what you were doing elsewhere. So if you took the mortgage interest deduction and it filled up your bucket with $17,000 worth of deductions, then pretty much everything else that's in the tax code would be limited.

VELSHI: Right.

All right, Kevin, I want to bring up -- I appreciate that you continue to come on the show and have the same discussion with me because I want to bring up the 12 million jobs promise.

Romney and you say that his policies, including his tax plan will help create 250,000 jobs a month for four straight years. That's a grand total of 12 million jobs. And I agree with you, Larry Summers is a Democrat but he was the treasury secretary, he was President Obama's economic adviser. Here's what he had to say about it.


SUMMERS: There's a long tradition of campaign arithmetic by challengers that confuses a goal with a forecast. It's a worthy goal.


SUMMERS: It's a good thing to strive for. President Obama would rather create four million jobs. He'd rather create five million jobs. He'd rather create six million jobs. But there's a difference between a goal and an aspiration and a reasonable forecast.


VELSHI: So, Kevin, is 12 million jobs a goal and an aspiration or a reasonable forecast? Is it -- is it campaign arithmetic?

HASSETT: Well, I think it's something that would happen if Governor Romney were elected. I truly believe that. You know, if you look at private sector forecasters and, as you know, like Moody's and macroeconomic advisors and others are already looking forward to higher growth over the next four years because they think that the recession is finally getting behind us.

And if you look at the jobs numbers implicit in private sector forecast, they're finding jobs like 12 million over the four-year period. The question is just, you know, why would we switch from where we are to the state where we could have an economy that once again would deliver 12 million jobs?

VELSHI: Right.

HASSETT: Well, the reason that private forecasters find that is they think that we're going to return to normal. I would argue that if President Obama is re-elected we won't. That we won't fix our big problems.

VELSHI: Right.

HASSETT: We won't go back to the normal U.S. economy. And we won't have those jobs. But under Governor Romney's plan, I think that there's a story that's backed up by lots of studies that we could go back to that 12 million jobs.

VELSHI: Yes, these studies, these studies definitely are a bit of an issue because we can -- we apparently can't find them to support any respective --


ROMANS: It's studies of studies.

VELSHI: Studies of studies.


HASSETT: No, that's not true, Ali. That's not -- that's not true.

VELSHI: Well, what about --


HASSETT: You will not find any study that says that President Obama is going to create jobs with -- by hiking marginal tax rates. There's no study that says that.

VELSHI: Well --

HASSETT: You know, so we're talking a lot about Romney's plan. You know, Obama doesn't even have a plan. And so there is no one and out there that one could argue with the 12 million jobs.

VELSHI: One of the studies that Mitt Romney cited in defense of the 12 million jobs, the author of one of those studies has come out and said no, that's a misinterpretation of my words. So you know what I mean? Like it's what I'd be happy if it happens, Kevin. I'd be most happy to wear a dress for a week because I think if we created 12 million jobs, that would be a really, really good thing for America. I like big -- I like big goals. I'm just trying to figure out whether you should get people's votes on the basis of two things, the tax cut proposal that you've got and the jobs creation proposal that you have that does depend on greater economic growth and it's a -- it's a slightly hard line to completely connect. That's the issue.

HASSETT: Well, if we take your perspective on it, though, you would have to concede that you've got a choice between a candidate Romney that has a proposal that arguably could create 12 million jobs. You know, maybe you doubt it. But it's not going to, you know, cut the number of jobs created over the next four years. And then a candidate who's basically just photocopied his budget from last year and said that's my plan.

And the only thing really economically substantive in there is a big hike on small business and wealthy individuals which, you know, maybe you think that the redistribution from that is a good thing. I mean the president's jobs plan from last fall, you know, it's just something that, again, has not garnered a lot of support even in the Democratic Senate because it's just the same old stimulus stuff that he gave us right at the beginning.


VELSHI: Right. But there's an infrastructure bank idea in there that could be very strong. Do you like that part?

HASSETT: You know, I don't know if his characterization of an infrastructure bank is exactly the one that I would support. And I'm not speaking for Governor Romney here. But I know that moving towards, you know, public-private partnerships, as they do in Canada, is something -- once again it's your candidate, right, that we're celebrating. Canadians have done a great job of building an infrastructure bank that fosters public-private partnerships and gets a lot of infrastructure built without -- increasing taxes.

VELSHI: Christine, I just -- I just like to keep talking to Kevin until he says something nice about Canada.


Kevin, always a pleasure to see you. Thanks so much.

HASSETT: That's easy.

VELSHI: Kevin Hassett is senior fellow --

HASSETT: Yes, thanks. Thanks, Ali.

VELSHI: The director of economic policy at AEI. Christine Romans is host of "YOUR BOTTOM LINE."

All right, both President Obama and Mitt Romney want to expand domestic oil production.

(BEGIN VIDEO CLIP) MITT ROMNEY (R), PRESIDENTIAL NOMINEE: We're going to get a North America energy independent where we don't have to buy any oil whatsoever from the Middle East or from Venezuela.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: In 2010, it was under 50 percent for the first time in 13 years.


VELSHI: Coming up next, CNN's Fareed Zakaria with his own roadmap to energy independence.


VELSHI: Both President Obama and Mitt Romney want America to become energy independent. It's a battle that centered on domestic oil drilling during this week's presidential debate.


ROMNEY: The president cut in half the number of licenses and permits for drilling on federal lands and in federal waters.

OBAMA: We've opened up public lands. We're actually drilling more on public lands than in the previous administration.


VELSHI: Well, the North American continent is already moving toward a more energy independent future. Thanks to natural gas in America and synthetic crude oil from Canada. That trend will continue no matter who sits in the White House next year.

Let's take a look at oil, for instance. America is about 5 percent of the world's population. But it consumes about 1/5 of the world's daily oil production. Forty-five percent of the oil Americans consume is imported. That's way down from the peak of 60 percent in 2005. In fact, America is now the third largest producer of oil in the world today. U.S. oil production has jumped 14 percent in the last three years alone.

Deepwater drilling in the Gulf of Mexico is bringing even more oil to market. Mitt Romney wants to open up the Pacific and Atlantic coast to drilling. Something President Obama opposes. Instead, Obama wants to invest in alternative forms of energy that will eventually replace oil.

Fareed Zakaria is host of CNN's "FAREED ZAKARIA GPS." He also has a new special focusing on the coming U.S. energy revolution. It's called "Global Lessons: The GPS Roadmap for Powering America." It airs Sunday at 8:00 p.m. right here on CNN.

Fareed, welcome. This may be the one thing that partisan scorched earth politics isn't hurting. In fact, both of these candidates are arguing similar things. They're both moving toward energy independence for North America. FAREED ZAKARIA, HOST, FAREED ZAKARIA GPS: Exactly. And the revolution that's taking place is quite extraordinary. You know, we were all expecting a technological revolution in energy. But what we meant by it was wind and solar.


ZAKARIA: And instead, we got a technological revolution in the extraction of oil and natural gas. The result is that chart we showed by the end of this decade the United States will be the world's top exporter of oil and liquefied natural gas. So we will be ahead of Saudi Arabia.

VELSHI: That's incredible. The implication, of course, of the natural gas is that you can use that not just as a normal fuel but you can use it to produce electricity, which will make the cost of electricity more stable and cheaper in the United States, which could lead to a resurgence of certain industries.

ZAKARIA: The most important -- the natural gas piece, you're right, is very important because it lowers the costs of manufacturing. Now when you're thinking about manufacturing, when you're thinking about putting up a plant and employing a lot of workers in America, people often think the big problem is the wages of the workers. No. The big thing they worry about is the cost of energy.

VELSHI: Right.

ZAKARIA: And if energy costs dramatically drop, we are producing gas at about $2 for, you know, a thousand cubic feet. In Russia, they sell it to Europeans at $19.


ZAKARIA: So we're much cheaper. And as a result, Dow Chemical and places like that are beginning real manufacturing operations in the United States.

VELSHI: Right.

ZAKARIA: There's also an environmental benefit. Natural gas emits half the CO2 emissions of coal. And almost everywhere natural gas is replacing coal. So it's sort of a win-win. Though it is controversial.

VELSHI: Still a fossil fuel like coal and like oil, President Obama wants to focus a lot more on non-fossil fuels, wind, solar, hydroelectricity. And that's an area that you look into in your special.

ZAKARIA: Yes. Look, there's no question that the ultimate future for energy should be that we take advantage of the things we have. And some amazing statistic like in 14 seconds the sun emits enough energy, it hits the earth to power the entire earth. So if we could find a way to capture that, I mean, it's wind blowing, this is renewable, it's unending, and if we can get it to be cheap and on scale, this would be the ultimate solution. This would be the true energy revolution.

So what Obama wants to do, which I think is a smart idea, is invest while we continue to extract oil and natural gas. Use it as a sort of bridge technology for the next several decades, but eventually figure out a way to get those costs down for wind and solar. Now you can -- you have to design those programs intelligently in terms of investment in technology. But you know we have done it before. The Defense Department and NASA supported the computer industry.

VELSHI: Right.

ZAKARIA: In the 1950s, half of all computer chips produced in the world were bought by the U.S. Defense Department.

VELSHI: Right. And now we don't think of the computer industry as supported by government. This is going to be a great special. I'm looking forward to it. Thanks, Fareed.

ZAKARIA: Pleasure, Ali.

VELSHI: And the special, "Global Lessons: The GPS Roadmap for Powering America" airs Sunday at 8:00 p.m. right here on CNN.

Coming up next, the man with a plan. Legendary oil tycoon, T. Boon Pickens rolled out his solution for ending the United States' dependence on oil before the last election. Why he's encouraged by what he's hearing ahead of this election.

And take a look at this. This thing can create eight times as much power as the Hoover dam. What is it? I'll explain after the break.


VELSHI: Two thousand, two hundred and three trillion cubic feet. That's how much natural gas the U.S. government says we are sitting on in this country. That would be enough to last about 92 years at current consumption rates.

Production of natural gas is climbing, up 14 percent between 2008 and 2011. As technology allows us to extract more and more from deeper and deeper beneath the ground. And as the abundant supply increases, it made it cheaper than the price of gasoline. And that's why oil tycoon-turned-activist T. Boon Pickens says it's the key at least in the short term to getting the U.S. off of imported oil.

Now you'll remember back in 2003 Boon released the Pickens Plan. It's a blueprint for U.S. energy independence. And it had four key pillars. Number one, use America's abundant natural gas to replace imported oil as a transportation fuel. Number two, build a 21st century electrical transmission grid. Number three, develop renewable energy sources such as wind and solar. And number four, incentivize homeowners and commercial building owners to upgrade their installation and increase efficiency.

Now Boone says the first one using natural gas to fuel vehicles is the critical puzzle piece right now. But getting there won't be easy because most of the natural gas in this country is used to create electricity and just 1 percent of it, that little pink slice over there, is used for transportation.

Joining me now is my friend T. Boone Pickens. He is the architect of the Pickens Plan and the founder of BP Capital.

Boone, today natural gas in the United States accounts for about 112,000 vehicles. It powers about 112,000 vehicles, mostly commercial vehicles. The transition costs are huge. We need filling stations all across the country. How do we get there? How much progress, if any, are we making?

T. BOONE PICKENS, FOUNDER, BP CAPITAL: Just leave it up to private capital. You don't need the government to do one thing for you. Please, please. I've heard it so many times. Let the government do the infrastructure. Let me tell you, if we do that, I'll be dead and gone by the time the infrastructure is complete.

Just let private industry handle it. We have plenty of natural gas just like you said, 92 years, I accept that number. Now 112,000 vehicles, you know how many vehicles there are in the world that are on natural gas? Thirteen million.

Gas problem, the Russian company announced yesterday this week that sometime they are going to use natural gas for transportation fuel. It will happen. It has to happen. It's $2 a gallon cheaper than it is for diesel. Natural gas is cheaper. But we got a heated discussion going on in energy in the second debate. They didn't come up to any conclusions. Now we're going to switch over to our third debate, foreign relations.

Foreign relations Mideast is built right on top of energy. That's exactly why we're there.

VELSHI: Well, Boone --

PICKENS: And so we don't have to be --

VELSHI: Let's talk about that because you're talking about that second debate. You're happy that they actually discussed energy. President Obama certainly understands that natural gas needs to be in the mix. Listen to what he had to say.


OBAMA: We continue to make it a priority for us to go after natural gas. We've got potentially 600,000 jobs and 100 years worth of energy right beneath our feet with natural gas.


VELSHI: But, Boone, you say Mitt Romney demonstrated a deeper understanding of energy. Tell me why.

PICKENS: He's got a plan. You see -- you heard what Obama said there. He talks about natural gas. Sure. Does he have a plan? Never seen it yet. He never has a plan. It's always just a speech. It's what he has. But you've got Romney. He's got a 21-page plan. Is it perfect? No, but it's pretty good -- it's a pretty darn good plan. And so -- but here what you're going to have on the third debate, you need to get into we're in the Mideast. What are we in the Mideast for?

The Straits of Hormuz, there are 17 million barrels of oil moving out of there today. Moves out every day. We get 13 percent of that. Two million barrels come to the United States. So we have people. We have our Navy over there. We have people on the ground. We are spending -- listen, if you rolled up what the cost of that two million barrel as a day that we get out of the Straits of Hormuz, it'd be $300 to $500 a barrel.

It's insane what we're doing over there. These two guys that are running for president need to come up with a plan as to -- we can get off the two million barrels a day from the Persian Gulf, Straits of Hormuz. We can get off of that very easily with our own resources in this country. We have more oil. We have the natural gas that can go to heavy duty. What you need -- what you need out of this third debate is a plan.

VELSHI: T. Boone Pickens, always a pleasure to talk to you. Thank you for joining us.

Well, if there's one country doing energy the right way, it's China. That's just one of the reasons everybody is talking about it.


REP. JOHN BOEHNER (R), HOUSE SPEAKER: All of this borrowing from China --

REP. NANCY PELOSI (D), MINORITY LEADER: Change that's were taking place in China.


BEN BERNANKE, FEDERAL RESERVE: Some emerging markets like China.


VELSHI: Government investment in energy and infrastructure has made China a legitimate world power. How is China's rise changing your future and how can you capitalize on it right now?

That's next on YOUR MONEY.


VELSHI: Take a walk in Shanghai today and you'll feel like you've stepped into a time machine and traveled into the future. I had a chance to visit China again in August and while there I cancelled my flight from Beijing to Shanghai to try out the high-speed rail.

High-speed rail is exactly the kind of smart, long-term infrastructure investment that the U.S. economy desperately needs. In just two decades, China has seen 350 million people, more than the entire population of the United States, move from the countryside into the cities. And those massive skyscrapers and super efficient subways are paying off.

Now it's true that China's growth is slowing. Look at that. And it simply can't sustain its current pace of growth. Shanghai's stock market is trading at one-third of its 2007 peak in part because of a lack of transparency, concerns about the pace of political and economic reform, rampant bribery, theft of intellectual property and questions about how China will deal with the manipulation of its currency.


ROMNEY: China has been a currency manipulator for years and years and years. And the president has a regular opportunity to label them as a -- as a currency manipulator but refuses to do so.

OBAMA: As far as currency manipulation, the currency has actually gone up 11 percent since I've been president because we have pushed them hard.


VELSHI: Well, the currency of the Yuan has appreciated but not as much as President Obama says it has. Regardless by keeping the currency low, China can sell the products that it manufactures for less than their worth. And that makes it hard for American companies to sell goods at a price high enough to pay wages to their workers. Well, it's a problem. But somewhere in there there is an opportunity.

Stephen Leeb is the chairman of Leeb Capital Management. He's the author of "Red Alert: How China's Growing Prosperity Threatens the American Way of Life."

So that's the threat, right? The threat is that there are a bunch of things that China is doing that make it hard to compete with them.

STEPHEN LEEB, AUTHOR, "RED ALERT": Yes. And also, Ali, there's also the threat that, you know, all this infrastructure spending that you referred to is using up tremendous amounts of -- of resources. And you referred to 350 million. There is another 350 million people they want to push into urban areas.

VELSHI: That's right.

LEEB: And there is over $1 trillion they want to spend on a smart grid. Another major infrastructure project. Probably a trillion dollars on water. When all is told, over the next seven years, China may spend $3 or $4 trillion on new energy and new infrastructure.

VELSHI: Right.

LEEB: That's a world like spending effort.


LEEB: Just to get their economy into a modern way and just to sort of lay the groundwork for the 21st century.

VELSHI: Right, which we talk about even here. They're doing it in very big numbers.

Now what does this mean as an opportunity? How does my viewer take advantage of all this growth in China? Because when you listen to the presidential debates, all you hear about China is it's bad and it's a threat. There's got to be some way to make money off this.

LEEB: Well, sure. Where there is pay dirt, there is always opportunity. I mean I think longer term commodities are definitely going to benefit because of --


VELSHI: All of these Chinese are going to prosper and they eat more and they need to build more.

LEEB: Right. Exactly. Exactly. I mean building a smart grid is going to take massive amounts of copper and other materials. Getting all these people into the cities is going to take massive amounts steel and iron ore. I mean --

VELSHI: And they're eating more food. They were getting more prosperous.

LEEB: Right.

VELSHI: They're taking in more calories.

LEEB: Just recently the most recent GDP report was, you know, all in line with target, 7.4 percent, I believe. But you saw boosted consumption.


LEEB: I mean the Chinese are really managing their economy very well.

VELSHI: And 7.4 percent compared to 1.3 percent in the United States.

LEEB: Yes.

VELSHI: Let's talk about the stock market. The Shanghai stock market is not doing well at all. You have to think about -- you have to be careful when you're thinking about investing in China for stocks.

LEEB: Right. I have to use your word, barometer. It's not a barometer. In our country, the stock market is a barometer more or less than the economy. In China, not really at all. I mean the solar industry, for example, they'll support their solar companies even though they may be bankrupt.

VELSHI: Right. LEEB: They don't care that they're bankrupt as long as they learn how to manufacture as cheap as possible.

VELSHI: Right.

LEEB: If you're investing in China, buy commodities. Buy the ETFs that underlined by particular commodities like JJC for copper, GLD for gold, et cetera. I think that's the best way to go.

VELSHI: ETS can be bought just like a stock with those tickers.

Stephen, good to see you. We'll continue the conversation.

LEEB: Thanks for having me.

VELSHI: Stephen Leeb joining us.

Coming up, she was the woman in charge of protecting your money during the financial crisis.


SHEILA BAIR, FORMER CHAIRMAN, FDIC: We participated in the bailouts. And they did have a short term impact in stabilizing the market. But that's not something I'm proud of. I'm ashamed of that. I mean we have to do it but it's not something to brag about.


VELSHI: Four years later, she's pointing fingers and she's naming names. Who had your back and who didn't? That's next on YOUR MONEY.


VELSHI: America heads to the polls in a little over two weeks. One question you probably asked yourself during the campaigns, are you better off now than you were four years ago? Well, when it comes to the overall U.S. economy, the answer is absolutely yes.


VELSHI (voice-over): Four years ago America and the world marched to the edge of the economic abyss.

GEORGE W. BUSH, FORMER PRESIDENT OF THE UNITED STATES: Major sectors of America's financial system are at risk of shutting down.

VELSHI: The financial crisis actually kicked up two weeks earlier with the collapse of Lehman Brothers.

BUSH: We've got a big problem.

VELSHI: But by four years ago this week, it had morphed into a global freeze of credit that threatened the world with economic depression.

(On camera): This is credit at the highest level between institutions.

(Voice-over): Congress was presented with one choice and one choice only.

BUSH: It's important to get credit flowing again.

VELSHI: Bail out the banks. The banks that got us into this mess in the first place.

(On camera): Should there even be a bailout?

CROWD: No Bush bailout.

VELSHI: Americans protested and lawmakers balked.

BOEHNER: Americans are angry. And so are my colleagues.

VELSHI: On September 29th, the bill to save the economy went down to defeat in the House of Representatives.

PELOSI: The legislation has failed.

UNIDENTIFIED MALE: I'm very disappointed in today's vote.

OBAMA: To the Democrats and Republicans who oppose this plan yesterday, I say step up to the plate.

VELSHI: Investors panicked. The Dow dropped 777 points. The biggest single-day point loss to date.

(On camera): This is what brought us to the brink of collapse.

OPRAH WINFREY, TV HOST: Wow. All because Annie went to get a house she couldn't afford?

VELSHI: I don't know whose fault that was --

WINFREY: There's enough blame go around.

VELSHI (voice-over): $1.2 trillion in market value wiped out in one day.

(On camera): It's really psychological at this.

(Voice-over): Congress quickly reconvened and four days later on October 3rd, it passed the $700 billion Troubled Asset Relief Program.

(On camera): Congress has agreed to a broad deal that authorizes the treasury secretary to start releasing money to free up the credit systems.

(Voice-over): That may have been the last time Americans witnessed bipartisan compromise on something that really mattered in Washington. Four years later, and on the eve of another election, voters are being asked, are you better off than you were then? The answer is yes. Because it was that bad. But how much better could it have been if Washington had in the last four years put intense partisanship aside to work for the good of the American people?


VELSHI: Sheila Bair was at the center of the storm with the financial system collapsing around all of us. She had your back. Her job was to deal with the failed banks. She was the chairman of the Federal Deposit Insurance Corporation. She's got a new book. It's a tell-all about her experiences during the financial crisis. She holds no punches.

It's called "Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself."

Sheila, good to see you again.

BAIR: Thank you for having me.

VELSHI: You -- in your book, it's just chalk full of information about the financial system about, what went wrong, about what went right. But in it you criticize the treasury secretary Timothy Geithner largely for just being too good to the banks, for being too close to the banks. Tell me a bit more about that.

BAIR: Right. Yes. Well, we did have a fundamental, philosophical clash of views. And I think Tim was operating with the best of intentions. But I think he viewed the world as stabilizing the big financial institutions, making them profitable again and that was going to help the rest of the economy. And it just didn't work out that way because their interests and our interests are very different.

VELSHI: What should have happened?

BAIR: Well, we should have -- look, in 2008, we were spending out of control. We did need to do something. And we did something very dramatic. And I think those in retrospect were overly generous. But in 2009 we had a stable financial system by 2009. That was when we started -- should have been imposing some accountability. I think we should have tried to break up Citigroup or at least force them to sell off their bid assets, replace their management.

We didn't do that. And then the other banks were forced to solve their bad assets and clean up their balance street. We didn't do any kind of fundamental restructuring in the financial sector in 2009. We just propped up everybody. And as a result, I think this continues to be a drag on economic growth. We have a bloated financial sector.

VELSHI: A drag on economic growth. Does that mean it's as bad as it was? Can the same things happen again?

BAIR: No. No. Well, I think it can, yes. I think we've got more capital into the banks now.

VELSHI: Right. BAIR: That's one of the positives that I point out in the book. But there are a lot of very new and pretty scary risks out there. And Europe continues to be a problem of uncertain resolution. Interest rate risks, I think, longer term, we really don't know what the outcome is going to be this very long protracted period of near zero interest rate policies. You know, and there's still a lot of risk taking in these banks.

One of the bad course of keeping interest rates near zero and very low rates on safe investments is banks and everybody else look for return and they go to higher -- you know, higher risk assets to try to get their return.

VELSHI: One of the things that low interest rates did for us for so long while it got everybody in the House has created this wealth effect.

BAIR: Right.

VELSHI: Has it masked real problems in the economy?

BAIR: Yes, it did. That's right.

VELSHI: And you're concerned that that continues to happen.

BAIR: That's happening again. I absolutely do. I think our problems are structural. Congress needs to deal with our unsustainable fiscal situation. They need to clean out our tax code. It's very inefficient. Our corporate rates are far too high. But nobody pays them because you have all these special exceptions.

VELSHI: Right. So we have -- we have high rates but the -- but so many people get out of them.

BAIR: Exactly.

VELSHI: Would definitely be better if we had lower rates. But more people pay.

BAIR: Right. And make everybody pay the same. Right.


BAIR: And that would make us more competitive internationally, too, I think.


BAIR: That I think more than anything would help our domestic economy and our exports than, you know, this is yet another round of quantitative easing and trying to depreciate our currency to boost exports. The other countries are fighting it. We're getting into a currency war now. And I -- I respect that he is trying to solve our problems with monetary policy. But he can't. Congress and the president need to deal with this.

VELSHI: A lot of the things you suggest are not typically suggested by Republicans.

BAIR: Right. That's true.

VELSHI: You've been a Republican.

BAIR: Yes.

VELSHI: You -- part of the reason you wanted this book out now is because it should be part of people's decision making when they go to cast a ballot.

BAIR: It should be.

VELSHI: Right? They should be able to know who's out there to protect their interests.

BAIR: That's right.

VELSHI: Who of the presidential candidates is out there to best protect them?

BAIR: Right. Well, frankly, I'm disappointed with both sides. I think Mr. Obama, he's been talking a good game but -- if you look at Dodd-Frank implementation, it's been very slow. There's not been much leadership there. The rules when they do come out are highly complicated. A lot of exceptions.

Mr. Romney, on the other -- other hand, says he wants to repeal Doff- Frank and replace it. But it's not clear what he wants to replace it with. And neither one of them are acknowledging that they are trying to promise that they're going to have improved economy in the next four years. But they're not relating that to having a stable financial sector. They're not going to have a healthy economy if they don't have a stable financial sector.


BAIR: And we don't have it right now.

VELSHI: That is key to our economic recovery.

Sheila Bair, this is a great book. It's an important read for everybody. It's called "Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself."

Up next, you need more people like Sheila Bair watching out for your money, why? Because the super rich are shutting the door on the middle class. At least according to one influential author. He'll explain next.


VELSHI: America is segmented, broken up, divided. Occupy Wall Street highlighted the divide between what they term the top 1 percent and everybody else. Then Republican presidential candidate Mitt Romney was caught on a hidden camera saying 47 percent of the country backs President Obama because they're dependent on the government and feel like victims.

Since then he's reiterated that he cares about 100 percent of the population. But this week Mitt Romney unveiled a new group, the 5 percent.


ROMNEY: I am not going to have people at the high-end pay less than they're paying now. The top 5 percent of taxpayers will continue to pay 60 percent of the income tax the nation collects.


VELSHI: The Tax Policy Center says the top 5 percent make at least $181,000 a year. So do you feel confused, not sure where you belong? Well, a new book by Chrystia Freeland explains that it doesn't actually matter which group you identify with because it's neither the 5 percent nor the 1 percent that matters. It's the 0.01 percent. They're the only ones winning these days and they are pushing everyone else down the economic ladder.

The book is called "Plutocrats: The Rise of the New Global Super Rich and the Fall of Everyone Else."

Here's my cliff notes version. Freeland says that America's super rich are isolating themselves. They have more to do with the super rich in other countries than they do with their fellow Americans. And guess what? Just like Mitt Romney's 47 percent, the super rich also feel like victims. They're ostracized by society, they're disconnected from the working class who drive their cars and build their mansions and pile up their yachts, and they're not going to take it anymore.

Chrystia Freeland is the author, a good friend of our show.

So in the old world, there were always rich and there were always super rich. But they made their money on the backs of people who bought their products, so it was incumbent upon you to want a strong middle class in your country because they buy your stuff. Now you're saying that the connection between the super rich and who they need to buy their products or use their services is not national.

CHRYSTIA FREELAND, AUTHOR, "PLUTOCRATS": That's exactly right, Ali. And I want to stipulate, no, I believe in globalization. I think it's a great thing for the world overall. I think it's really great for the people in emerging markets who are being raised up, but we do also have to be aware of what are the consequences and the impacts. And if you think back to the Henry Ford era, he believed he had to pay his workers well so they could afford to buy his cars.

What we're seeing in the U.S. economy is the economy of the people at the very top breaking away from the economy of everybody else. There was a famous Citigroup investor note called "The Plutonomy" that said increasingly we're seeing the U.S. economy divide into the economy at the very top and the economy below. And the reality is, as you know from people you talk to on your show, when you're at the very, very top, you don't think about your national consumers. You think about the global economy.

VELSHI: What's the consequence for public policy? What's the consequence when the very rich in society are that disconnected from everybody else?

FREELAND: Well, I think that the consequence is that what is good -- a couple of consequences. One is they just are living increasingly separate lives, and what is very really crucial, you know, you said, Ali, that the rich are different from the rest. If the rich have always been with us, true, but they haven't been with us in the way they are today. And it is really important to face the facts that that gap has become a yawning chasm.

In the past three decades, it has just exponentially grown. So, one, they're much more distant from the rest of us than they used to be, and two, the kinds of policies that they might think are right may not be what suits the middle class today. And that is particularly important in the United States, in the era of super PACs, when we are seeing the political voice of the rich really, really have a megaphone.

And we see a lot of people who feel -- you know, and we hear this directly from Governor Romney, that their business expertise translates into policy expertise. Qualifies them to make good decisions.

Well, I just think that we have to be really thoughtful about that and say, OK. Just because you know what's really good for your business and for this type of business, will that automatically translate into something that's good for the hollowed out middle class?

VELSHI: An interesting conversation and a great book.

Chrystia, thanks so much for being with us and for talking about the book. It's called "Plutocrats: The rise of the New Global Super Rich and the Fall of Everyone Else."

Well, what happens when a bunch of CNN correspondents, producers and photojournalists climb on to a bus and trek 1800 miles across the country? You're about to find out. We hit the road next.


VELSHI: All right, I'm hitting the road next week. The CNN Election Express Bus. You know that one. It's all gassed up. And a few of my friends are joining me this time. We're rolling from Florida to Ohio, and we want to talk to you.


VELSHI: We are hearing different things from people wherever we're going. JOHN AVLON, CNN CONTRIBUTOR: Battleground bus state tour. It's a chance to get on the road and talk to folks on the ground in the states that will decide the winner of this next presidential election. Florida, Virginia, Ohio.

The reality is that this election is going to be decided by a comparatively small number of voters in a handful of states.

VELSHI: There is this new normal that says things aren't as prosperous as they used to be. I want to see if the election changes that for people.

AVLON: And it's tight. This election is tight right now.

VELSHI: For all the economic reports you can read, for the interviews you can have with CEOs and the discussions you can have with economists, you can tell more about the economy by just getting out there and understanding how people are making their money and spending their money.

UNIDENTIFIED MALE: When you guys open up?

VELSHI: We are going to be going through parts of the country that have very, very different and specific economic needs, but each one of those will map on to something else across the country.

There's a really important distinction between where people are and where they think they're going. And being on these trips really gives me a sense of where people think they're going.

Jobs. Unemployment. How many think that that's a bigger problem? As much as people would like to say, I don't care about this circus, this isn't about me. They kind of have to.

AVLON: It's both a right and a responsibility. If folks aren't clear on that, they should go read a history book. It's our rent from living in a free country.

VELSHI: We're just there to talk to them. We're just there to listen. Most of the time, people think we talk for a living, but we're actually going to be listening to people, and there's no greater education than that.


VELSHI: And CNN contributor John Avlon joins me now and he's going to join me on the bus.

This election is coming down to a smaller and smaller number of states, and districts, and counties, and we're going to go in there and we're not going to hear the same thing. You study this a lot. You have a real sense of the distinctions between the stories we'll hear in Florida and in the Carolinas and in Virginia and in Ohio.

AVLON: Totally different political topographies. Totally different economic topographies. And that's what makes this all so fascinating. You know, this election does come down to swing voters, and swing districts, and swing states. And the character is completely different. Florida, 40 percent of houses still underway on their mortgages.

VELSHI: Right.

AVLON: Unemployment a real problem. Very diverse state obviously, fast growing, and in those key swing counties there, the local issues, the economic issues, the face it's an aging population.


AVLON: So Medicare and health care, a real issue. North Carolina, obviously a state that there's textile industry decimated decades ago.


AVLON: The whole issue of manufacturing moving out. Bible belt, but also research triangle. Virginia, unemployment, half the national average, because of government workers.

VELSHI: Right.

AVLON: In that case, Northern Virginia, very diverse.

VELSHI: So they've got -- they have to take a different view of this whole government "get out of my life" situation.

AVLON: Exactly right. You know, the folks in Loudon County, the key district there, that anti-government rhetoric doesn't work for them. They're scared to death about the sequestration cuts.

VELSHI: Right.

AVLON: The military defense cuts.

VELSHI: Defense cuts, yes.

AVLON: Yes. And then of course there's Ohio. And Ohio is shaping up again to be the big one.


AVLON: This is my mother's home state. I know it well. And here's a state that has gotten just terrible economic news for decades. Steel mills closing, manufacturing moving out. But all of a sudden in the eastern part of the state, there's this oil and gas boom going on. And it's fascinating how that's all of a sudden changing people's lifestyles and family farms.

VELSHI: Unemployment is starting to go down in that state.

AVLON: Absolutely.

VELSHI: They have a lot of autoworkers there who like the fact that the auto worker -- the auto industry was saved. AVLON: Big time.

VELSHI: We're going to be in Youngstown, we're going to be in Toledo, we're going to be Camden, we're going to be there right before the election. So follow that trip all next week. The CNN Express Battleground bus tour starts next week.

I'll be tweeting, I'll be checking my Facebook page the entire trip. I want to hear from you. My twitter handle is @alivelshi. I'm on Facebook at

Thank you for joining the conversation on YOUR MONEY this week. We're here every Saturday at 1:00 p.m. and Sunday at 3:00 p.m. Have a great weekend.