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Congress May Not Pass Unemployment Insurance Extension; Education Performance by American Students Examined; Inequality Continues to Grow in America; Private Equity Firm Does not Keep Promise to Divest in Gun Manufacturer

Aired December 14, 2013 - 14:00   ET


CHRISTINE ROMANS, CNN ANCHOR: Compromise breaks out in Washington. A budget deal is reached. But save the champagne and balloons for New Year's Eve, because bipartisan support has turned into a family feud.

I'm Christine Romans, this is YOUR MONEY.

Republican Congressman Paul Ryan and Democratic Senator Patty Murray agreeing on a deal. House Republicans passed it Thursday evening and the Senate is expected to do the same next week. It sets a spending limit and erases most of those steep across-the-board cuts scheduled for next year and adds some other cuts.


REP. PAUL RYAN (R), BUDGET COMMITTEE CHAIRMAN: You can't get everything you want, but you can get things done if you focus on that common ground area. I'm not going to begrudge anybody who for one reason or another chooses not to vote for it. These things aren't perfect, but we think this is a step in the right direction.


ROMANS: But before any voting happen, Republicans started whining about what Republicans were giving into and Democrats started whining about what Democrats were giving up.

Ken Rogoff is a professor at Harvard University and the former chief economist at the IMF, Ryan Lizza is a CNN political analyst and a Washington correspondent for "The New Yorker."

Gentlemen, thank you for joining me this morning. Now, Ryan, family feuds over money can be brutal. I mean, this family feud over money is really, really starting to get interesting. This really caught my attention. Here's what the House speaker said about outside conservative groups blasting this deal.


REP. JOHN BOEHNER, (R) HOUSE SPEAKER: They're using our members and they're using the American people for their own goals. This is ridiculous. Listen, if you are for more deficit reduction, you are for this agreement.


ROMANS: Is this little, I don't know, civil war breaking out in the Republican Party the newest threat to the -- to this government bipartisanship?

RYAN LIZZA, WASHINGTON CORRESPONDENT, "THE NEW YORKER": Well, I think what we saw this week -- that was an amazing moment. We saw John Boehner basically taking control of the Republican caucus for the first time since January 2011 when he became the speaker of the House. He basically -- look, the vote was huge. It was an overwhelming majority of Republicans supported the bill, which is not the case in these previous deals.

So he basically, you know, after the government shutdown had the authority to say we tried it your way, we lost, you guys tanked our popularity, and now -- and now we're going to try it my way. So this is probably one of the most significant moments of John Boehner's speakership.

ROMANS: You know, the Democrats are fighting amongst themselves too over extending unemployment benefits. You know, that's not part of the budget deal. I want you to listen in to Nancy Pelosi.


REP. NANCY PELOSI, (D-CA) HOUSE MINORITY LEADER: It's interesting to note that they rejected unemployment insurance. This is so unconscionable. It's practically at the level of immoral to do. The people who work hard, play by the rules, lose their job through no fault of thin other are not able to get -- continue to get an unemployment insurance check.


ROMANS: So this is a question for Ken Rogoff, the economist. She's talking about morality, Ken, but from an economics standpoint, you say it makes no sense to pull that back right now. That's not the deal right now. It makes no sense to pull back that extended unemployment benefits for people who have been long-term unemployed?

KEN ROGOFF, ECONOMIST: Yes, this is not an ordinary recession. This is the worst thing in 80 years. And maybe in a short recession you say, OK, after a while you need to find a job, you need to start looking. There's a balance. But here there just aren't a lot of jobs still for a lot of people.

ROMANS: Why isn't it in that deal? I mean, why can't both sides agree on that? We saw in the jobs report -- we know if you are newly unemployed, if are you newly unemployed, you are having the best chance of getting a job in several years. If you are long-term unemployed, absolutely nothing has changed. Those long-term unemployed are Republicans and they're Democrats too, you know?

ROGOFF: They are. I mean, it's a philosophical difference, feeling, well, if we give into this, it will last for 10 years. We won't be able to pull it back. But I think that's a big mistake. I think they should have extended unemployment insurance, and I can't explain the politics. It's not good.

ROMANS: Ryan, you explain the politics then. I'm going to hold you accountable.

LIZZA: I would like to know if Ken agrees with this. They could have -- they have some short-term deficit reduction in this package, and I think most economists, Ken, correct me if I'm wrong would say the problem is not the short-term deficit, it's the short-term deficit. And why not take that short term deficit reduction, the money up for that, and put it into the unemployment benefits instead. It seems like that would have been a better deal. Unfortunately the politics are to get Republicans to vote for this deal, John Boehner had to be able to say that it reduced the deficit.

ROMANS: But it's not transformational, Ken, on the deficit, is it? It's not transformational on our big structural problems, is it?

ROGOFF: No. They didn't do anything about tax reform, entitlement reform, building infrastructure, creating long-term changes. This is a small deal over the small common ground. It's good at least things keep moving. At least we're not going to shut down the government. We're not going to retract from where the economy is going. But it's certainly much more like a truce on the western front, not, you know, big deal.

ROMANS: Here's my crystal ball. I look at my crystal ball, guys, and I see next year home prices continue to improve. I see the unemployment rate gets out of the seven percent handle and down into the sixes, right? I see, hopefully, and I think you think this, Europe starts to heal a little bit, and I see no government shutdown, Ryan Lizza? Really, really are we going to put those battles behind us?

LIZZA: I agree, the economy improving, the long-term deficit or the short-term deficit means less governing by -- from crisis to crisis and a little more reality-based government like we saw this week.

ROMANS: Healing? The economy is healing?

ROGOFF: Yes. It is healing. There are a lot of things I would like to see, particularly we've turned to now stability, now we have to do something about the long run to build for the future, and it's very paralyzed. But the private sector is healing.

ROMANS: All right, Ken Rogoff, Ryan Lizza, nice to see both of you this weekend. Thank you.

OK, so President Obama is calling on the sexiest man alive to push Obamacare. Maroon 5's Adam Levine, who won the honest of sexiest man alive last month, in case you live under a rock, is one of several celebrities taking part in the "Tell a friend get covered campaign." They'll use their star power to boost enrollments on social media and via videos. For more stories that matter to your money, give me 60 seconds on the clock. It's "Money Time."

(BEGIN VIDEOTAPE) ROMANS: Taxpayers are now out of the car business. The government sold the last of its stake in General Motors whittling a nearly $50 billion bailout down to a $10 billion loss. The sale closes the books on the 2009 auto bailout.

Buy a house, kill a tree? The average mortgage application now 500 pages long, five times longer than just a few years ago. Blame it on tougher disclosure requirements after the housing crash.

Want some stock with that movie popcorn? AMC Theaters is going public, so loyal customers will get a chance to buy shares at the same price big investors do. Turns out most Americans are not ready for cell phones on airplanes. As U.S. regulators debate changing the law, a new poll finds 59 percent would prefer to keep cell phones silenced.

Health conscious consumers are ditching their diet drinks. Spending on diet colas fell more than seven percent in November compared with a year ago.


ROMANS: Up next, economic inequality is about much more than low wages. Pop quiz, in which of these countries do citizens have the worst chance of climbing higher on the economic ladder than their parents did, the U.S., Japan, Germany, or Australia? The answer next.


ROMANS: So was the American dream a myth? Work as hard as you want, but there's a good chance you won't climb any further on the economic ladder than your parents did. The average American now has about a 50 percent chance of being stuck in the same economic class they were born into. It's easier to move up in most other developed countries -- Japan, Germany, Australia, and all of the Scandinavian nations. Only Italy and the United Kingdom have less economic mobility among developed nations.

But if you have a job, a little bit of savings, you're underwater on your house, I'm telling you, things are getting better right now in the economy. But even as the economy shows these signs of strength, millions of Americans are still out of work. They're feeding their families with an unemployment check, maybe, and the federal extension of those benefits expires at the end of the month. That's going to be a very big deal for the 1.3 million people who are living on these emergency jobless benefits.

Kai Ryssdal is the host of "American Public Media's Market Place" and is here with us this morning. Nice to see you.


ROMANS: Recent data showing things are getting better.

RYSSDAL: Yes. ROMANS: At the same time we're talking about the expiration of these benefits, this 1.3 million. Look at the jobs. The signs of strength in the economy are clearly there, but then let's look at who is winning here, right, this low wage debate. At the same time you got people saying the economy is getting better, but most people don't feel it. You know, fast food workers say it's not them. You look at corporate profits, doing fantastic. Worker pay moving sideways. What's happening here?

RYSSDAL: Here's the thing. Actually if worker pay was moving sideways, we would be better off, because real wages now, when you take inflation into consideration, are actually declining. You're not making any money if you are working in low wage jobs. You're just not. Even though there's not a whole lot of the inflation in this economy. Over the years real wages have declined.

So what's going on? I don't know. We're stuck in a slow recession. You saw the chart. GDP growth at 3.6 percent. That's great, but it's going to be revised down, as it always is. We're adding jobs, but too slowly. GDP is growing too slowly. We're just stuck.

ROMANS: We've reset our expectations. We really have.

RYSSDAL: That's exactly right.

ROMANS: We really have.

RYSSDAL: The bar is in a different place, and I think everybody needs to get their mind around that.

ROMANS: One of the things that's so frustrating about it when you talk about extending the unemployment benefits is that this is money that goes right into the economy, unemployment benefits. But you could really make --

RYSSDAL: We should explain why that is, because low income people are more likely to spend that extra dollar, and that's what's going on in this debate in Washington as they decided not to include these benefits.

ROMANS: Yet, there is this fundamental idea you could think after six months, come on, we cannot be playing someone not to work for so long. There's a fundamental American feeling that this can't go on forever. But then this economic argument that it can go on a little bit more, and that wouldn't be a bad thing.

RYSSDAL: Because this is the worst it's been in 80 years in this country, right? Yes, we can't keep paying people not to work. Can we pay people not to eat? Take your pick. As you said, people are paying for food with these unemployment benefits. That's what's really going on here.

The reason it's not in the budget deal that was just taken care of in Washington is because it costs $20 billion. You can see the economic argument, right? It's one of those poor issues between the parties. So it's a really big problem. ROMANS: I want to show you one more thing. Huge gains for stocks, this year, and I know your listeners are talking about this -- 52 percent have Americans own stocks, but 10 percent of Americans own 80 percent of stocks. This is why stock markets don't influence the debate over low wages in the America.

RYSSDAL: The Dow Jones is not the economy and the economy is not the Dow Jones Industrial Average, right? So we need to separate those two things. But what happens when the stock market rises, those people who are in the markets, even people on the lower end of the income spectrum, right, people who do have pensions and they might have some savings, and if they do, then it's a mutual funds, and those mutual funds are in the stock market. Everybody begins to feel better. But still, it's not enough. That's not reality. That's not economic reality.

ROMANS: Kai Ryssdal, "American Public Media's Marketplace."

You don't get a do-over with your child's education, and the latest international rankings show American students are slipping. But one of America's leading education stories says test results, they don't matter. Next.


ROMANS: Are U.S. students prepared for the jobs of the future? Let's examine the evidence. First, put on your rose-colored glasses for a moment for the optimistic view. The jobs of the future require college degrees, and Americans have them. And 42 percent of Americans between the ages of 25 and 64 do have a college degree. That makes the U.S. the fifth most educated in the world behind Russia, Canada, Israel, and Japan.

Now, broken glasses. What's going wrong? The Pisa rankings, these global rankings measure the skills of 15-year-old students around the world. America's 15-year-olds are underperforming. They are average in reading, 24th out of 65 in advanced countries and cities, 28th in science and below average in math -- 36th place. And America's rankings fell in all three of those subjects from three years earlier.

Diane Ravitch is one of America's leading education historians. She's a professor at New York University, and she's the author of a new book "Reign of Error, The Hoax of the Privatization Movement and the Danger to America's Public Schools." She says U.S. students were never at the top of the class.


DIANE RAVITCH, AUTHOR, "REIGN OF ERROR": There have been these international tests now for 50 years, and when the first one was given, we came in dead last. And in the intervening 50 years, we came out first economically. So the scores don't predict anything about your economy. What they really show is how much tests -- how much you get kids drilled in testing. And that's why the very test-centric nations in the Far East and East Asia have the highest scores because they have a test, test, test culture. ROMANS: Maybe you disagree that there's a crisis in public school education.

RAVITCH: I do. There is not a crisis. Our public schools are doing an incredible job considering that almost 25 percent of the kids in this country live in dire poverty.

ROMANS: So this is a poverty story, not a testing story?

RAVITCH: Absolutely. If we look at child poverty, we're number one in the -- in amongst all the advanced nations. We have the highest level of child poverty. And in fact, if you look at the scores on Pisa or on any other test, the low scores are the scores of the kids in poverty. So if we really wanted to raise test scores, we wouldn't be testing more and more and more. We would be raising up the kids who are in poverty.

ROMANS: I think most agree. I certainly think that most important factor for a student to succeed is the quality of the teacher at the front of that room. That person is so important.

RAVITCH: There's something even more important.


RAVITCH: It's their home life. Study after study has shown teachers are important, the most important element inside school, but what happens outside school is even more important. Whether the children come to school healthy or whether they come to school at all, whether they attend regularly. That accounts for more, way more than the quality of the teacher. I think that's important too.

ROMANS: How do we support that teacher?

RAVITCH: Well, to begin with the burnout rate is close to 50 percent within five years. Part of that is because we have exceptionally low standards for allowing people to teach. There are many states where you can teach with an online degree.

ROMANS: Should we raise those standards?

RAVITCH: Absolutely. We should have much higher standards. People should have a professional preparation before they become teachers, and once they're teachers, they should be supported. This is what happens in all of the countries who we look at and say this is a great school system, whether it's in Asia or in Europe. They're supporting their teachers. They're not firing their teachers. They're not judging them by test scores of children.


ROMANS: Coming up, a year ago a $20 billion private equity firm pledged to get out of the gun business. Now some Newtown parents are frustrated.

(BEGIN VIDEO CLIP) UNIDENTIFIED MALE: I hope they would just hold their promise and not let the victims of Sandy Hook down.


ROMANS: Why hasn't the company that made the weapon used at Newtown been sold, as was the promise? That's next.


ROMANS: One year ago today 20 children and six educators were gunned down at Sandy Hook Elementary School in Newtown, Connecticut. Since that tragedy, fear of tougher gun laws has led to a run on guns. Smith & Wesson shares are up more than 40 percent this year. Fellow gun-maker Sturm Ruger, those shares on the stock market up more than 60 percent.

Based on how well gun-makers are doing it would be hard to believe the biggest gun-maker in the country is having trouble to find a buyer. Poppy Harlow joins me now. Poppy, a year ago a $20 billion private equity company said it was getting out of the gun business. It was an emotional moment where you heard a company saying that it wanted to get out of that business. Bring us up-to-date.

POPPY HARLOW, CNN MONEY CORRESPONDENT: A company that is very private. I mean, you never hear publicly from these private equity firms. Their goal is the pursuit of profits. So when you hear a company, Cerberus Capital Management, come out and say they are going to sell a highly profitable business, well, something has changed. But one year later that sale hasn't been made, and we wanted to know why.


UNIDENTIFIED MALE: I'm here today to try to remind Cerberus of the promise they made and that they're letting my son, Jesse, down.

HARLOW: Neil Heslin wants answers from one of New York's biggest private equity firms, Cerberus Capital Management. One year ago his son, Jesse, was murdered at Sandy Hook Elementary. Heslin says Cerberus hasn't yet kept its promise.

NEIL HESLIN, SON KILLED IN SANDY HOOK MASSACRE: If it was something they weren't going to honor or stand behind, it shouldn't have been made.

HARLOW: Cerberus owns Freedom Group, the country's largest gun-maker. Its brands include Bushmaster, which manufactured the weapon used in the massacre in Newtown. Just days after the shooting Cerberus pledged to sell freedom group, calling the tragedy a watershed event. But one year later there is been no sale.

If someone else buys Freedom Group, does that change anything?

HESLIN: I don't think it's going to change the gun violence issue. I can't see that it would change the operation of the Freedom Group. HARLOW: Then why do you want to see a sale?

HESLIN: Because it's what -- I just want to see them carry through with what their pledge.

HARLOW: At the same time Cerberus has a fiduciary responsibility to investors not to sell at a fire sale price. Rommel Dionisio covers the gun industry on Wall Street.

Why do you think Cerberus hasn't sold Freedom Group yet?

ROMMEL DIONISIO, SR. VP OF EQUITY RESEARCH, WEDBUSH SECURITIES: I think Cerberus is really facing a difficulty in finding buyers willing to take on the regulatory risk associated with the transaction. Over the next three years the Obama administration could certainly pursue further gun control legislation.

HARLOW: In a statement to CNN Cerberus says "We remain committed to divesting our holdings in the company in an efficient and responsible manner. We cannot comprehend the losses suffered by the families and friends of those killed by the unthinkable crimes committed that day."

A source familiar with the situation says the national conversation on guns has complicated the planned sale of Freedom Group. There were a number of interested parties, but by early fall those leads had fallen away. Today we're told there is no interested buyer on the table, leaving Cerberus exploring alternatives.

One possibility, bring in others to take a stake in Freedom Group and then buy out investors who want to get out of the firearms maker. But they would be walking away from a very profitable business. Freedom Group sales are expected to top $1.25 billion this year, up nearly 40 percent from a year ago.

DIONISIO: The entire firearms industry has seen record sales and profitability this we're in the wake of the Newtown shootings.

HARLOW: Despite those profits, several public pension funds have dropped their shares in gun companies. That includes the California state teachers' retirement system, which turned out to be an investor in Bushmaster.

CHRIS ALIMAN, CHIEF INVESTMENT OFFICER, CALSTRS: I was devastated when we realized that we had this investment in our portfolio.

HARLOW: But one year later CalSTRS still has the same $600 million invested in Cerberus funds that hold Freedom Group.

ALIMAN: We believe they've made good faith efforts to try and sell the company, but it's been a very tough year. We're unrelenting in our view that they should sell this company, so we'll keep the pressure on them. We'll keep engaging them. We're very long-term investors, so we don't go away.

HARLOW: Neil Heslin says he won't go away either, but he will keep fighting in memory of his son. HESLIN: He was a character. He just loved life to the fullest.


HARLOW: Well, analysts say freedom group is valued at more than $1 billion. That makes the field of possible buyers pretty narrow. Even a company like Smith & Wesson would likely have to take on debt to make that deal happen. As for Neil Heslin, right, because this is very personal to him, he says, you know, I understand the business of it. I just want answers. I want them to come out and talk to me and answer my questions about why this hasn't happened yet.

ROMANS: We'll keep following it. I would like to say that the families have asked that people commit random acts of kindness, so maybe that's -- feeling so impotent about the money behind the gun industry, I guess maybe let's lead with the message of the random acts of kindness. Thank you very much, Poppy Harlow.

HARLOW: You got it.

ROMANS: Thank you for watching "YOUR MONEY." Have a great weekend, everybody.