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Your Information, Our Business; Hack My House; Smartphone Wars; The Business of Being Ashton Kutcher; Money is Bigger in Texas; A Summer Swoon; Black Borrowers Face Discrimination; "American Dream vs. American Reality"; America's Large Prison System Examined; Gun Permits Soar in Newtown; Airline Merger Grounded

Aired August 18, 2013 - 15:00   ET


CHRISTINE ROMANS, CNN ANCHOR: Big Brother is watching you, and so are Chinese hackers, identity thieves and tech companies. I'm Christine Romans and this is YOUR MONEY.

Technology is moving forward but security is sometimes left behind.

In the rush to create gadgets, manufacturers are leaving security holes that hackers can use to attack you and your families. Then there are the companies that you trust your data to. You don't pay for Facebook or Gmail but those companies are selling something: they're selling you. Their computers scan your data to build a user profile.

Advertisers use those profiles to target their ads and the more they know about you the more they pay.

Consumer groups were outraged this week after Google filed a legal motion earlier this summer and in it Google's lawyers referenced a 1979 Supreme Court ruling that says, quote, "A person has no legitimate expectation of privacy in information he voluntarily turns over to third parties." Now Google's chairman told me the company is just trying to help you.


ERIC SCHMIDT, EXECUTIVE CHAIRMAN, GOOGLE: You get to choose not to give us this information, but if you give it to us, we can do a better job of making better services for you.


ROMANS: So Google and Facebook want your personal information to target content and ads for you.

So why is the U.S. government looking over your shoulder?


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: And America is not interested in spying on ordinary people. Our intelligence is focused above all on finding the information that's necessary to protect our people and, in many cases, protect our allies. (END VIDEO CLIP)

ROMANS: I want to bring in Rod Beckstrom. He's the former director of the National Cybersecurity Center.

Rod, is the message here that we shouldn't put anything sensitive in e-mail or online that there is no expectation for privacy in what we do in a very technology-driven world?

ROD BECKSTROM, PRESIDENT, THE ROD BECKSTROM GROUP: Anything you put online is definitely at risk. I will say that. You can make some choices that are better than others to try to protect your privacy, but yes, if you are e-mailing online, you are taking the risk that that content can be disclosed.

ROMANS: So we've all done it. We scroll through pages and pages of terms and conditions to use new software, a new device. And we click accept. That is what happened to Kyle in an episode of "South Park." Listen.


UNIDENTIFIED FEMALE: What are you going to do to us?

UNIDENTIFIED MALE: Everything that you agreed to in the iTunes conditions.

"KYLE": We didn't read them.

UNIDENTIFIED MALE: Right, who just agrees to something they don't read?


ROMANS: We get the point. A lot of people do that.

Rod, we hear a lot of buzz every time Facebook or Google changes its terms of service, but so far there has been no mass user revolt.

What would it take to push users over the edge? Because they do it for convenience, quite frankly, and they don't have a lot of other choices.

BECKSTROM: Sure. Yes, I'm not sure what is going to push it over the edge. There are three categories of people, those that don't know what is going on in this new connected world, those that do and feel comfortable with all the data that's been gathering on them, and there is a growing minority that is pretty concerned about what they sense is a violation of their privacy.

ROMANS: Every story this week, basically at some point it went back to the privacy concern for Americans. Yet we turn around, we buy new gadgets, we use new services, we download new music. We don't see -- we worry about privacy but we continue to go about our daily business.

I guess what we're hoping is that the companies that were -- the government and companies and anybody who has our information has our best interests at heart.

BECKSTROM: Sure, the power of these devices is just exploding, growing exponentially, and so the data is massive and huge. It's possible for companies, for governments and hackers can intercept all of this as well.

It's a growing thing and we're just going to have to deal with this as a society. We got to look at improving our policies, we have to look at being more -- better informed consumers and trying to make better choices.

ROMANS: All this outrage this week over that Google story, I have to tell you, this is what the Google statement was to us, "We take our users' privacy and security very seriously. Recent reports claiming otherwise are simply untrue. We have built industry-leading security and privacy features into Gmail. And no matter who sends an email to a Gmail user, those protections apply."

Do you think the Google criticism was overstated this week?

BECKSTROM: I think, you know, people need to understand what companies are doing and make their own decisions. For some people, it's a problem. They don't feel comfortable with that and other people may feel very comfortable sharing everything with a company. So it really depends on the perspective.

ROMANS: Depends on the perspective, and there is always that phrase, caveat emptor. If something is free, you should know that someone is trying to make money. There is a business model here.

Hey, Rod, it's so nice to meet you. Thank you so much.

If our online lives are being tracked they are at risk of being hacked, that's no surprise, but what is going on in your home is vulnerable too.

CNNMoney's Laurie Segall joins us now.

Hi, there.

LAURIE SEGALL, CNN CORRESPONDENT: That's right, Christine. It almost reads like a movie script. A hacker tapped into a home wi-fi network, accesses a baby monitor and watches a 2-year-old in her bedroom -- I kid you not. It happened this week to a family in Texas.

Are you freaked out yet? Well, it's not just baby monitors that are at risk, your home could actually be hacked too, if you are not careful.


SEGALL (voice-over): Imagine your 2-year-old daughter sleeping and an outsider watching her through the baby monitor. That's what happened to a family in Texas this weekend. They discovered the problem when they heard a man yelling at their toddler, reading her name off of her bedroom wall. MARC GILBERT, FATHER: So he said "Wake up, Alison, you little (inaudible)."

SEGALL (voice-over): The Gilberts believed their device was hacked.

GILBERT: It felt like somebody broke into our house.

SEGALL (voice-over): Someone kind of did. And as home automation becomes increasingly popular, there are more and more ways to hack your house, and many devices that are vulnerable.

DANIEL CROWLEY, SECURITY RESEARCHER, TRUSTWAVE: I can tell the VeraLight, please unlock the door.

SEGALL (voice-over): That's a hacker, literally unlocking your door. The smart lock is connected to a device that enables you to control your home appliances from your phone. Daniel Crowley, a security researcher, found a flaw in that device.

CROWLEY: I actually run code on the VeraLight and compromise it, just set up a backdoor, or I can control any device hooked up to it.

SEGALL (voice-over): In a world full of these devices that let you do everything, from flush your toilet to turn on your lights through your smartphone, a hacker can make your house feel haunted.

DAVID BRYAN, SECURITY RESEARCH, TRUSTWAVE: Basically, what I can do is open up any of these rooms that have been configured or associated with this device, and control them, either turning them on or turning them off.

SEGALL (voice-over): Sound like something Casper would do? These security researchers found an issue with this INSTEON hub that enabled them to take control of the devices connected to it.

A similar vulnerability was found in a children's toy. This toy rabbit has a camera that syncs with an app on a parent's mobile device. Designed for keeping an eye on your kids, but someone else could, too.

JEN SAVAGE, SECURITY RESEARCHER: That traffic, I was able to capture and then pull from it a URL, which was the direct video feed, and as long as the access token was still valid and had not been expired yet, I could watch that video feed indefinitely.

SEGALL (voice-over): INSTEON has fixed the issue identified by these researchers. VeraLight stresses that a hacker requires an insecure wi-fi connection, and they say the majority of their users have secure Internet connections.

The makers of the baby monitor and the toy rabbit did not immediately respond to CNN's request for comment.

As for ways to stay safe, always put a strong password on your Internet connection, keep your software up-to-date and never click on links from strangers. (END VIDEOTAPE)

SEGALL: And, Christine, when it comes down to it, had this family, when it comes down to the baby monitor, had they updated their software, this would not have been an issue. But let's take a step back. How many times do you look at a baby monitor and say, oh, I have got to update the software in my baby monitor? This is just a whole new reality that we're beginning to face.

ROMANS: Right. OK. Strong passwords, secure Internet connection most important things in all this.

SEGALL: Absolutely. Absolutely.

ROMANS: Thank you so much.

SEGALL: Thank you.

ROMANS: We all know Steve Jobs was a brilliant tech entrepreneur, but did you know the man playing him on the big screen, he is no dummy himself.


ASHTON KUTCHER, ACTOR: The sexiest thing in the entire world is being really smart.

ROMANS (voice-over): No, you are not getting punked. More on the business of Ashton Kutcher, next.


ROMANS: Billionaire activist-investor Carl Icahn has never been shy and now he's discovered Twitter. Quote, "We currently have a large position in Apple. We believe the company to be extremely undervalued. Spoke to Tim Cook today. More to come."

That's Apple CEO Tim Cook, and for Icahn, that's a $1.5 billion investment.

Apple stock soared this week in the wake of a tweet heard around the investment world, Apple shares trading above $500 for the first time in a very long time. The stock has been climbing back from a low of $390 a share back in April, still well off the highs. Investors still worrying the company just isn't innovating the way it used to under that legendary Steve Jobs, who passed away nearly two years ago.

So skepticism shared by Oracle CEO Larry Ellison among others, who called Steve Jobs irreplaceable.


LARRY ELLISON, CEO, ORACLE: We will not be nearly so successful because he is gone. He was brilliant. He was our Edison. He was our Picasso.


ROMANS: But Picasso's gain value is (inaudible) age where Apple's operating system has been losing market share to Google's Android, that's Google's operating system which runs on devices from Samsung HTV and Google's own Motorola division, among many others.

Android devices are often cheaper than iPhones, which means Apple is losing out on a huge customer base. That's the buzz around a possible low-cost iPhone that could be announced as early as September.

So Apple is poised for a comeback. But the grandfather to the smartphone isn't.

Remember these? That's right. Just five years ago, BlackBerry had more than half of the smartphone market -- today 2 percent, lagging way behind its rivals. The company's new BlackBerry 10 operating system is designed to appeal to consumers, but so far it hasn't caught on the way the company hoped. Now BlackBerry says it could be put up for sale.

So what would it be selling? A loyal user base, a reputation for security and patents which could be worth $1 billion by themselves.

All right. Apple has changed our lives in the past and with the movie out this weekend, everyone is interested in the business of Steve Jobs, but what about the business of the actor playing Jobs? The business of being Ashton Kutcher.


ASHTON KUTCHER, ACTOR, "STEVE JOBS": I would like to introduce you to the iPod.

ROMANS (voice-over): Ashton Kutcher's latest job? Portraying Steve Jobs on the big screen.

KUTCHER: He is a hero of mine. I admire him.

ROMANS (voice-over): But playing the role of a brilliant tech entrepreneur is hardly acting. Kutcher is a very involved and very successful tech investor. He studied biochemical engineering at the University of Iowa. But biology of a different sort led Kutcher to drop out, leaving the lab for the runway.

Fame soon followed. Despite prominent roles as good looking but dimwitted in "Dude, Where's My Car?" and "That '70s Show," Kutcher is no dummy when it comes to startups. He recognized the value of Twitter very early, and in a very public race, Kutcher beat CNN and became the first Twitter user to get 1 million followers.

Today he pushes his investments to more than 14 million followers. Kutcher was part of a group an early investors in Skype, an Internet calling service. Back then it was valued at $2.75 billion. Two years later, Microsoft bought Skype for more than triple that.

Now Kutcher backs some of the most buzzed-about ventures, Foursquare, Airbnb, Flipboard, Path and more. He invests through his own venture capital fund, Agrade.

And the onscreen airhead is laughing all the way to the bank. He is the highest paid actor in television raking in an estimated $24 million last year for his work on "Two and a Half Men," not to mention top dollar endorsements like his deal with Nikon.

From Hollywood hottie to Silicon Valley superstar, and now the lead role playing the iconic Steve Jobs, the business of being Ashton Kutcher is --

KUTCHER: Oh, yes.


ROMANS: All right. They say everything is bigger in Texas. And when it comes to the money sports teams make, it's true. Here's the score.


ROMANS (voice-over): Dallas Cowboys, the most valuable team in the National Football League, according to a Forbes list out this week, the team is worth $2.3 billion thanks in part to a 25-year $500 million deal it struck with AT&T back in July for the naming rights to its stadium.

The New England Patriots are the second most valuable franchise at $1.8 billion, followed by the Washington Redskins, the New York Giants and Houston Texans.

Texas is also king of the college game. The University of Texas at Austin rakes in the most cash for its merchandise, according to the collegiate licensing companies. It's the eighth year in a row the Longhorns have taken the spot. Alabama, Notre Dame, Michigan and Kentucky round out the top five.

And finally, football is coming back to Los Angeles, well, arena football that is, and the L.A. Kiss will start playing in 2014, and the rock band Kiss backing the team along with some other investors. And it's affordable. Season tickets start at just $99. You have to provide the face paint.

All right. Up next, after back to back triple digit losses, what is behind the pullback in stocks?



ROMANS: Ooh, a summer swoon. This year we saw back to back days of triple digit losses in stocks, so what is troubling them? We're getting close to September, the time many think the Fed will begin the taper, the same Septaper -- that's when it slims down its bond buying purchases. Last week U.S. jobless claims fell to the lowest level since October 2007. That gives the Fed room to taper. But we have also got very weak consumer spending signals from some big retailers, like Walmart and Macy's. Add to that news from companies like Cisco, the world's number one's Internet router maker, that business is soft. That speaks directly to business spending, all of this hitting confidence at a time when markets are up big for the year.

Mohamed el-Erian is the CEO of PIMCO.

Maggie Lake is my friend and the anchor of WORLD BUSINESS TODAY on CNN International.

Mohamed, I want to start with you. This little market pullback, bond yields are at two-year highs, what should retail investors, our viewers, my viewers, what should they make of what happened this week?

MOHAMED EL-ERIAN, CEO, PIMCO: They should put it in the following context. The equity market has come a long way, as you mentioned. Not on an absolute basis, but relative to Europe and the emerging world.

And it has done so based on two things, one, this notion that the Federal Reserve is our best friend and will continue to support the markets and second, on the notion that no matter how sluggish the economic conditions are, companies can continue to be very profitable.

Last week we got warning signs on both. On the first one the Fed continues to signal that it will taper its support. It will take its foot off the accelerator, not just because the economy is healing, but also because it's worried about the consequences, the collateral damage, of its experimental policy.

And we got two very important signals out of Cisco and Walmart, as you mentioned, that the corporate sector is starting to have a more difficult time. So people should be more careful because there's also a lot of uncertainty coming up in September.

ROMANS: So being more careful of September, Maggie, the Septaper on the calendar.

So is there a big reset in expectations happening now as we get closer, especially jobless claims the lowest since 2007. That shows health in the labor market. That's what Ben Bernanke had said, when things look really good in the labor market again, we'll be able to stop supporting the economy so much.

MAGGIE LAKE, CNN CORRESPONDENT: And that should be a good thing. We should feel good about the fact we don't need to be on life support anymore. I think that people are a little bit concerned about how things are going to go with the Fed because we're in unprecedented territory.

We have never seen this. But I asked the same thing. People are sitting on very big gains, very big profit gains.

If you're a money manager, you want to lock in those gains. You don't want to turn around to a client and say, oh, right, actually, we lost money. And that's what I heard from a trader this morning. People are booking profits, closing out these long bullish positions they've had.

They are not initiating new selling. This is not a wave of new sellers coming into the market. It's people being a little cautious and saying I'm going to book that so I still look good at the end of the year.

ROMANS: I have been hearing some bulls say they still have targets for the S&P 500 well above here, but they were looking for some kind of a pause or a pullback, Mohamed, because they said you can't go up straight all the time. Markets go up and markets go down. That is the truth here.

We talk about the taper though. It means a return to the fundamentals. Stocks, bonds, the market will react based on the fundamentals of the U.S. economy, not based on all this money the Fed is pumping into things.

What do those fundamentals look like to you?

EL-ERIAN: They look like the economy continues to heal, but it's nowhere near escape velocity. It's not validating the prices that are already in the market.

And that's why there's a sense, as you said, that if we get a correction, if prices become less artificial, that will attract the considerable amount of cash that's still on the sidelines. That's why people are saying you need a correction in order to continue the rally, as strange as that may sound.


ROMANS: Do you think what we need -- we'll see more of a pullback in stocks here?

EL-ERIAN: I think that's certainly a risk. Remember what's been pushed back to September. It's not just whether the Fed will taper. We have the debate about the debt limit. We have the debate about whether the government will continue to function.

In Europe we have a very important German election. In Japan we have real concern as to whether they're going to deliver on what they called their third arrow. So there's a lot of uncertainty that the market has pushed back into September-October, and people are saying, you know what? With all the gains I have made so far, let me book some profits here.

ROMANS: What is your assumption on interest rates? Because the irony there is if it gets really crazy in Washington, then the world starts rushing into treasuries again for a safe haven. So it's kind of -- I don't know, what's your anticipation for what all that would mean for interest rates here? EL-ERIAN: So interest rates are responding to three different things. One is less Fed support, and that's why interest rates have gone up over the recent few weeks.

Second, there's an outflow of money from bond funds because people are worried that bonds may not be as safe.

And then, thirdly, we've had some economic healing. We believe that at these level of interest rates, the market is attractive again as long as you remain in shorter maturities.

So up to seven-year treasuries, in high quality municipal bonds, and in high quality corporate bonds, but be careful of the long end and be careful of low quality issuance.

ROMANS: All right. You heard it here directly from Mohamed el-Erian. Thanks, Maggie.

Mohamed, stay where you are.

Up next, American dream versus American reality: the cost of raising a child is on the rise, so is the cost of college. But wages aren't keeping up. The American dream, still alive?


ROMANS: The American dream, happiness and prosperity. A house, a great job, maybe a couple of kids and time to enjoy it all. The Great Recession is behind us but the recovery isn't so great. I'm Christine Romans, this is YOUR MONEY.

First, housing. Goldman Sachs says all cash deals are half the market right now. Wealthy investors, buyers from China, Canada, South America, pumping up recent housing data. Average Americans may be getting priced out.

In the second quarter, when you look at this, more than two-thirds of all the homes sold in the U.S. were affordable for families making $54,000 a year, that's the median U.S. income. But you can see how that affordability is falling.

Next, the labor market. Nearly 5 million net new jobs have been created since the end of the recession four years ago, but look at the jobs that were lost. Mostly middle wage jobs right here, and the jobs we're creating, mostly lower wage positions.

And finally, cute but costly -- children. For a middle income family it costs $241,000 to raise a child. That's from birth to age 18. Since 1950 that cost has surged 23 percent. That's in real terms, adjusted for inflation and includes things like housing, food, clothing, health care, as well as toys and computers.

Those of you in the Northeast are probably going to pay even more of that and the same out West, more than that average. Americans in rural areas getting a little bit more of a break. Marc Morial is the president of the National Urban League; Mohamed el- ERIAN is the CEO of PIMCO, a company that manages nearly $2 trillion in assets.

Marc, let me start with you.

What's the biggest thing holding back working Americans from this recovery today?

MARC MORIAL, MAYOR OF NEW ORLEANS, 1994-2002: Good jobs that pay good wages, number one; number two, the ability of people to restore their damaged credit, therefore they can borrow again for a home.

And I think thirdly, the idea that a young person who even earns a college degree is having a tough time finding a job in their chosen field of study. The American dream has been wounded, and we've got to rebuild it.

ROMANS: You know, Mohamed el-Erian, you know markets and you know the economy, and I was watching these retail earnings this week showing from store to store that a paycheck to paycheck customer is under stress right now. Walmart calling the environment challenging, sales at Macy's declined for the first time in four years. Interestingly enough, Bloomingdale's, also owned by Macy's, did fine. Costco (inaudible) had to really cut their prices to keep their sales up.

Why aren't working Americans enjoying the low interest rates and these high stock prices more?

MOHAMED EL-ERIAN, CEO, PIMCO: We're living, Christine, in a two-speed economy. On the one hand there is a group of people, many people who are worried about their jobs if they have jobs. They're not well-paid jobs; they can't own their home, and, in addition, they don't feel that they have adequate provision and access of public services, education and health.

And that is particularly true for the long-term unemployed, for the younger unemployed and it's particularly true for those below the poverty line.

On the other hand, we have a group of people that are better off. They have done extremely well.

Why? Because they have access to financial assets. And financial assets have been bolstered in an attempt to improve economy policy.

The problem is that this is not trickling down, so you're not getting inclusive growth, you're not getting enough job creation, and it is not an engineering problem. That's what's most frustrating, Christine, it's not an engineering problem. It's a political problem that has to do with incredible polarization in Washington.

ROMANS: So it's a Washington problem. Do you think the economy would be doing better if Washington had its act together a little bit more?

You know, Mohamed, I'm really worried about the quality of the jobs that the economy is creating right now, I mean, part-time jobs, low- wage jobs, temporary service sector jobs, one economist described this to me as a bartender economy.

Is that what a recovery is supposed to look like?

And can we keep a middle class strong and America the driver for the world if these are the kinds of jobs we're creating?

EL-ERIAN: No, that's not how the recovery should look like, and we are capable of so much more. And it's not just about the here and now, it's also about the fact that most Americans feel for the first time that their kids' generation will be worse off than theirs.

So two things that need to happen. One is at the macro level, Washington needs to act on the three problems we have -- insufficient demand, insufficient structural reforms, and we have to remove some debt issues. Then at the micro level, we have to empower and enable incredible talent, and this is about retooling and retraining.

ROMANS: Marc, I know you want to jump in there. Last word for you.

MORIAL: I think that one of the things is that this is a long-term trend. The loss of good-paying jobs was accelerated by the recession, but it began a long time ago with our trade and fiscal policies, which invented the transfer of good paying jobs abroad. The bills have now come in, the picture is not good. The nation needs an economic plan which restores manufacturing, which puts a premium on good jobs.

If the Congress wanted to do something in the short run, raise the minimum wage. Make a down payment on the idea that people who work need to earn a decent and living wage.

So there are political issues, but I think we need the public and private sectors to come together on a long-term economic plan for the country. We have to do it because what we see now is that the recovery is less than even and it's leaving many, many people behind, and these are warning signs for the future of this nation.

ROMANS: I think we'll be hearing more about quality and quantity in the jobs market and what that's going to mean for working Americans, paycheck-to-paycheck Americans and building the American middle class. Thank you very much, both of you. Talk to you again soon.

MORIAL: Thank you, Christine, thanks Mohamed.

ROMANS: Coming up, the U.S. makes up 5 percent of the world's population but 25 percent of its prison population. What that means for our economy and your money, next.


ROMANS: Crime pays, at least if you're in the prison business. The number of people locked up in the U.S. has quadrupled since 1980. The number of privately owned prisons has skyrocketed as well. Critics point in the large number of low-level drug offenders presently incarcerated. Attorney General Eric Holder says he will ask prosecutors to tweak the indictments that carry harsh mandatory minimum sentences arguing this country's massive prison system, the largest in the world, may be doing more harm than good.


ERIC HOLDER, U.S. ATTORNEY GENERAL: Today, a vicious cycle of poverty, criminality and incarceration traps too many Americans and weakens too many communities. Many aspects of our criminal justice system may exacerbate these problems rather than alleviate them.


ROMANS: Studies have shown black males are targeted for arrest more often and have received sentences nearly 20 percent longer than those imposed on white males convicted of similar crimes. Support for change now comes from places you might least expect.


NEWT GINGRICH, (R) FORMER PRESIDENTIAL CANDIDATE: I think you almost have to be blind to America and not realize that we still have very, very deep elements that go all the way back to slavery and segregation and they go all the way back to fundamental differences in neighborhoods and in cultures.

And I think it would be very healthy for the country and for the Congress to reevaluate both the criminal justice part of through court, but also to reevaluate the whole way we've dealt with prison and the way in which we've basically created graduate schools for criminality and locking people up in ways that are increasing their inability to function in society.


ROMANS: Graduate schools for criminality, a recent National Bureau of Economic Research study found that juvenile incarceration leads to lower high school graduation rates and higher chances of adult incarceration down the road.

Ashleigh Banfield is the anchor of CNN's "LEGAL VIEW," Anthony Papa is the author of "15 to Life: How I Painted My Way to Freedom", now the media manager for the Drug Policy Alliance, a group that advocates for the decriminalization of drugs.

Anthony, you lived this story. No record, no violence. You were paid $500 to deliver four-and-a-half ounces of cocaine. It's a crime, you don't deny that. But did you have any idea that you would spend more than a decade in prison for that crime?

ANTHONY PAPA, MEDIA MANAGER, DRUG POLICY ALLIANCE: No, I didn't. It was an awakening. I walked into a living nightmare, made a first- time, non-violent drug sale.

A bowling buddy asked me if I wanted to make a fast $500 delivering an envelope to Mt. Vernon from the Bronx. At first I said no. But I got desperate and when you get desperate you do stupid things. I delivered the envelope and walked into a police sting operation. And 20 cops came out of nowhere. They arrested me. I did everything wrong and I was sentenced to 15 years to life under the Rockefeller drug laws, which mandates mandatory minimum sentencing laws.

ROMANS: And that's exactly basically what Eric Holder is looking at right now and talking about right now. Actually if you're Eric Holder, you're looking at $80 billion spent on prisons a year. Take, for example, Tennessee. The costs to taxpayers for a year of youth incarceration there, $88,000. The cost of a year public school, Tennessee, $10,000. Last year there were more people incarcerated in this country than received bachelor's degrees.

Ashleigh, did you see any dissenters to Eric Holder's proposals?

ASHLEIGH BANFIELD, CNN ANCHOR: You would have expected a cacophony, but there wasn't necessarily a cacophony to what's inside the policy, it's just how the policy been changed. Eric Holder effectively said to his prosecutors stop writing in the amounts that people are getting charged with because that way we can skirt the mandatory minimums. But he didn't go to the legislative process to say let's rewrite these policies.

So that's where a lot of the dissension has come. But this is really a bipartisan thing, Christine. Everybody knows we are in crisis. We're bursting at the seams with our prisons. And precisely with what Anthony was dealing with. There are a lot of Anthonys who are sitting in prison right now.

Lest anyone, Christine Romans, should think that there are dangerous drug offenders who will be released out in the streets to attack our children, that's not what the policy is about, either.

You can't be violent, you can't have used a weapon, you can't have assaulted children, and you can't have connections to drug cartels or gangs or the Mafia or that sort of thing. So being specific about the people who would not, you would not apply in this case. You would be one of those people who would be spared one of those very long sentences.

ROMANS: Let's talk, Anthony, about what Newt Gingrich said in that clip that we just played, that prisons are graduate education for criminals, they increase the inability of someone to function in society.

Give us a view from the inside out.

How do prisons need to change so they do more rehabilitation and less punishment, especially for what you're talking about, nonviolent drug offenders who still have committed a crime, will have to face punishment, but what do you do over those years when you're in prison?

PAPA: To be sentenced to 15 years to life is unbelievable. When I went to prison I was lucky. I acquired three college degrees while I was in prison. I have a master's degree from New York Theological Seminary.

So education for me was a way to transcend the negativity of imprisonment. So I would say education is one way to do it.

And have prisons, instead of pure punishment, make them rehabilitative centers where people can find their real selves, because prison is the most existential environment there is. What I mean by that is something mystical about spending 15 years in a 6-by-9 cage. You discover who you are. So if you have these rehabilitative programs available, you can take advantage of it.

ROMANS: I think (inaudible) is one eloquent way of putting it.


ROMANS: -- would not think about it as a 6-by-9 cell.

But our prisons, Ashleigh, they are rehabilitation and they're punishment. I mean, what has -- the war on drugs has been about punishing and deterring. Have we failed? Have we succeeded?


BANFIELD: Yes, I think we failed in a lot of places. You, I think, are an exception to the rule, Anthony. I don't think a lot of people get a degree. I don't think they go to high school in prison. I don't think they get a master's degree, that's for sure. I think they come out with alarming recidivism rates in this country.

So you can watch these programs on television that show the gang- related activity, the segregation that exists in these societies, because they are their own societies, and they are not rehabilitation for the most part. Yes, there are exceptions to the rule, but for a lot of people it's hard to get that passed in Congress. Let's spend more money on the people in prison.


ROMANS: When you just look at the size of the population in prison, which is your first job is the job that is going to propel you for the rest of your life, for your economic life, for your family, for your kitchen table economic. I cover money. I cover family economics.

That first step, when it is into a prison, especially for young people, you have just derailed it and it is so, so deadly.

Anthony Papa, it's so nice to see you,

Ashleigh, talk to you very soon.

It's been just over eight months since the tragedy in Newtown, Connecticut. Today gun permits are soaring in the very town where 20 children and six teachers were gunned down. What's going on in the wake of the massacre? You're watching YOUR MONEY.

(COMMERCIAL BREAK) ROMANS: Late last year the massacre at Sandy Hook Elementary in Newtown, Connecticut, shocked America and started a new debate over gun rights. But there's been a reaction in Newtown, in Newtown, you might not expect. Poppy Harlow joins us to explain. Poppy?

POPPY HARLOW, CNN MONEY CORRESPONDENT: Hey, Christine. This was pretty surprising to me, but what we've seen in the months following the massacre at Sandy Hook Elementary School, the number of pistol permits issued in Newtown has actually risen significantly.

And if you look at Connecticut as a whole, the number of background checks for people who want to buy guns rose 53 percent from the six months before the shooting to the six months after.




ELIS: How you doing?

HARLOW (voice-over): She's a grandmother who is about to become a first-time gun owner.

ELIS: This way is easier.

HARLOW: Nancy Elis says the new gun laws passed in Connecticut, among the toughest in the country, are a big reason why she's buying her first firearm.

ELIS: Our rights are being slowly infringed upon, and that this whole idea of controlling guns has come to my back door. In other words, there could be a time when I may never be able to get a firearm.

HARLOW: Elis lived in Newtown for 28 years. Her desire to own a gun is part of a spike in the state. Newtown, vividly remembered for one of the worst gun massacres in U.S. history, is on track this year to double the amount of pistol permits it issued last year.

DAVID ACKERT, FOUNDER, NEWTOWN ACTION ALLIANCE: I'm concerned that it can get out of hand. Nancy Lanza had quite an arsenal, I understand, in her home. You only have two hands. How many guns can you fire at once?

HARLOW: Dave Ackert and Monte Frank are members of Newtown Action Alliance, pushing to curb gun violence.

MONTE FRANK, NEWTOWN ACTION ALLIANCE: There is a perception that the government will come and grab all their guns, where it's going to not allow them to purchase certain guns.

HARLOW: Newtown resident Ryan Delp owns multiple guns but did not want to show them on camera out of respect for the Newtown victims.

You went out and you bought another gun after the shooting at Sandy Hook Elementary. Why?

RYAN DELP, NEWTOWN RESIDENT AND GUN OWNER: That was 100 percent driven by the legislation that I was anticipating being passed. It's my responsibility to take care of and protect my family.

HARLOW: It's hard for Gilles Rousseau to understand, as he grieves the loss of his daughter, Lauren, killed at Sandy Hook.

GILLES ROUSSEAU, DAUGHTER KILLED IN NEWTOWN SHOOTING: It hurts in a different way. I had my first dream, my daughter was in the dream just about a week ago. And I said, Lauren is dead. How can she be there? She's dead.

HARLOW: What do you think when you see these numbers?

ROUSSEAU: It's sad. It's really sad. There are no other words to say. It makes me sad to think that people -- they feel that they're protecting themselves, but they're just adding to the problem.

HARLOW: There was also a surge in gun sales in Colorado following the Aurora movie theater massacre.

And after the 2011 mass shooting in Tucson, background checks for gun purchases in Arizona spiked.

While Nancy Elis grieves for the victims of the tragedy in her own backyard --

ELIS: My heart breaks for them. It truly does.

HARLOW: -- for her, this is about protecting her rights.

ELIS: Did the guns cause the tragedy? No. It is the person behind the gun that caused the tragedy.


HARLOW: And here's something I think is really important to point out, Christine. When you look at the number of guns, the number of Americans that own guns in this country has been declining steadily, really, since the '70s. But what we're seeing is more guns in the hands of fewer people.

And that's a key point that two of those men in the piece talked to me about that are part of Newtown Action Alliance. That's what really concerns them. They're not anti-gun per se. They're concerned about seeing more and more guns, what they see as sort of a stockpiling of guns in the hands of fewer people, and as you saw, they mentioned Nancy Lanza in that home with multiple guns.

ROMANS: Poppy Harlow, such an interesting story. Thank you, Poppy.

HARLOW: You're welcome.

ROMANS: Up next, a major airline merger rejected, now a legal battle brewing. Is the price for your next flight about to soar? (COMMERCIAL BREAK)

ROMANS: You're grounded. That's the message from the Justice Department to American Airlines and US Airways. The proposed merger of those two airlines would create the world's biggest airline. But the government says it's a bad deal for consumers.

Now, airlines have been merging since the late 1970s. In 1978 there were 20 major airlines in the U.S.

By 1990 there were just 12. And today there are just seven. The U.S. has seen three huge mergers in the last five years. Those were necessary to keep airlines in the sky. You couldn't make money doing it alone. But the Justice Department says that's not the case here, and if this merger goes through, those four airlines will control more than 80 percent of the U.S. travel market.

This is the chart the airline industry wants you to see. It's the cost of flying. The cost of flying has actually dropped over those 30 years, although prices have ticked up a little bit in the last decade.

But here's a chart they don't want you to see. In 2010, JetBlue and American Airlines made a deal which gave JetBlue slots at Washington's Reagan National Airport. Before JetBlue landed at Reagan, US Airways charged more than $1,200 for a last minute roundtrip ticket to Boston. After JetBlue arrived US Airways dropped the price to less than $500.

But if American Airlines and US Airways merge the new airline could end the agreement with JetBlue and the airline companies' own executives says that reduced competition has allowed them to raise fares and charge you more for things like checking your bag or changing your ticket.

At an industry conference, the US Airways president said, quote, "Consolidation has also allowed the industry to do things like ancillary revenues. That is a structural permanent change to the industry and one that's impossible to overstate the benefit from."

When I hear the words "ancillary revenues," I think about paying for snacks and headphones on domestic flights.

Move stories that matter to YOUR MONEY, give me 60 seconds on the clock, "Money Time."


ROMANS: Move over, America, China needs more fuel. China set to become the biggest importer of oil later this year as the U.S. produces more of its own.

Europe's long recession is officially over. The economy grew by 0.3 percent in the second quarter. That's the first growth since 2011.

Paula Deen might be winning in court, but she's not winning her empire back. After admitting in court to using a racial slur, Deen lost her contract with the Food Network, big name sponsors and her cookbook publisher. Now that a judge has tossed out racial bias claims in a pending lawsuit, sponsors are still steering clear.

Only 74 percent of American women are in the workforce. That's barely budged in the last 25 years and trails behind other developed countries.

Will you still like the way you look without George Zimmer? Men's Wearhouse released its first commercial without the "I Guarantee It" guy. The company dropped Zimmer this summer in a very public feud.

Another ad from JCPenney has moms up in arms. Parents say it promotes bullying because it features a kid eating alone thanks to the clothes he's wearing.


ROMANS: That's it for YOUR MONEY. We're here Saturdays at 9:30 am and 2:00 pm Eastern and we're back on Sundays at 3:00. Have a great weekend.