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Open House

Is Bailout Plan Working?; What Do the Presidential Candidates' Economic Plans Mean For You?; How to Get Your Finances in Order; Answers to Your Money Questions

Aired October 18, 2008 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

GERRI WILLIS, CNN HOST: Hello, I'm Gerri Willis and this is OPEN HOUSE, the show that saves you money.
With just over two weeks to go until Election Day, how the candidates are trying to win over the undecideds. Here's a hint. They have their sights set on your wallet.

Plus, tips to get your finances in order and answers to your e- mail questions.

But, we begin with another wild week on Wall Street, in a far- reaching effort to kick start the economy and get banks lending money to each other again, the government announced it will buy up to $250 billion worth of stock in banks and of financial institutions. Now, this, of course, is all part of that $700 billion bailout we've been talking about, but will it work? What does it mean for you?

Paul La Monica serves as editor at large for our very own CNNmoney.com. Amanda Gengler is a writer for "Money" magazine. And Greg McBride is a senior financial analyst for Bankrate.com. Welcome all.

Greg, I start with you. OK, Treasury standing behind these nine banks. Should I feel better about the financial services industry? Should I feel relieved if I'm a customer of one of those banks?

GREG MCBRIDE, BANKRATE.COM: Well, I think the goal here is to shore up confidence in the financial system, starting with those nine, but there's plenty of money left in the pot for other institutions out there. The idea is to get banks lending money to each other once again. If that happens, a lot of that can trickle down to bigger corporations, smaller businesses and ultimately to the consumer.

WILLIS: Is there any signal that it's working?

MCBRIDE: I think the biggest one to watch is LIBOR. If we start to see the LIBOR rates come down and I mean in a significant way.

WILLIS: And LIBOR's an interest rate that's based out of London, maybe hooked up to your adjustable rate mortgage. A lot of people don't know LIBOR.

MCBRIDE: Exactly and they're going to get a nasty surprise in November and December when those adjustable rate mortgages get pushed a lot higher. So, I think LIBOR is really key. If we tart to see those rates come down and come down in a significant way, right now they're 4.5 percent, if they come down to 3 percent then we've got some serious improvement. But, right now it's just been a trickle and that's not enough to get it done.

WILLIS: So, we have to keep an eye on it. Paul, I want to ask you about this statement from San Francisco, a fed official there saying, hey, we are definitely in recession. Now, I have to tell you, I don't know an economist in the country who doesn't think we're in it already or headed there. What is your take on the state of the economy, A, and, B, how long the economy might be weak?

PAUL LA MONICA, CNNMONEY.COM: Yeah, I mean, one thing to clarify, Yellin, the San Francisco Federal Reserve president, her exact language was, "appears to be in a recession." She obviously really has to hedge, so I think that's one thing to point out, first, but clearly...

WILLIS: But, they normally don't even say that much.

LA MONICA: Yeah, the normally don't even say the "R" word and I think that's one of the reasons for the big selloff that we saw on Wednesday. However, I think anyone that has been following -- even if you're not following the stock market, if you are following your own finances, you know that this has probably been in a recession for maybe -- maybe as far back as late last year.

We've had job losses all throughout 2008. We've had plunging home prices, rising food and gas prices early in the year really crimping a lot of household budgets. So, I don't think it's any surprise that we've been in a recession. And it certainly didn't start with the credit crisis.

WILLIS: And the question, of course, is how long are we be mired in these problems? Amanda, I want to talk to you about the $700 billion bailout plan. I get so much e-mail from folks who are so ticked off by this because they don't think they're getting anything out it. You say they're wrong. What am I getting from this $700 billion bailout plan?

AMANDA GENGLER, MONEY MAGAZINE: Separate from the part that is going to save the financial sector, there are over 100 changes to tax codes in there. We have another temporary patch to the alternative -- to the AMT, which is going to keep another...

WILLIS: Alternative minimum tax.

GENGLER: Yes, it'll keep another 20 million Americans from getting caught in that this year. We have...

WILLIS: Which just means higher taxes, we should say. Just because some folks out there don't even know about it, but it's a bad thing for consumers, generally.

GENGLER: Yes, but then there are lots of other tax credits. They have a new $4,000 deduction for college tuition. We have the return of the up to $500 energy credit for your home if you want to do things like install insulation, replace windows, anything to use less energy in your home. We also have something that's good for those who are retired. This year if you're 70-1/2 or older, you can take out up to $100,000 from an IRA and donate it to a charity without paying taxes.

WILLIS: I'd still rather have cash in my pocket. Greg, I think a lot of people agree with me. Let's talk about the people who are most at risk right now, and that's retirees, people who are living on fixed income, they're seeing their savings dissipate. What's your suggestion for them, today?

MCBRIDE: Well, you know, this is a tough spot, no doubt about it. And particularly if you've just retired in recent years, because the down turn in the market just at the time you start to take money out can really have a big impact on how long that money lasts. So, one suggestion is forego that cost of living adjustment that you may have allowed yourself to have.

Take out the same amount of money that you did a year ago. You know, also, those withdrawals that you start to take, take it from your better performing bond and cash investments, leave those equities and stocks alone. Give it some time to recover before you start taking money out of there.

WILLIS: I like that. Paul, just a quick question for you. We've seen incredible volatility this week in the stock market, a huge run-up, a couple of selloffs. How quickly could this stock market stabilize?

LA MONICA: Unfortunately, I don't think it's going to stabilize for a while. I mean, I've talked to a lot of people who mention exactly what Greg pointed out, that until LIBOR really comes down, it's just going to prove that there is still this frozen or at least, you know, highly locked up credit market and that's really the big thing right now, it's affecting what's going on with all stocks.

WILLIS: All right, guys. We're going to bring you back in just a second. Amanda, Paul, Greg, thank you for that. More with our panel a little later in the show. We'll be answering your money questions.

Also ahead, hey we're in the homestretch for the race for the White House and the states that matter most, what do voters want?

Then we're breaking down the candidates' plans for issue No. 1, the economy. And what do financial planning and speed dating have in common? We're going to show you. Stay with us.

(COMMERCIAL BREAK)

WILLIS: The economy is issue No. 1 this election year. Job losses, stock losses, higher prices, they're all making voters anxious for help from the presidential candidates. We visited a woman in Ohio who is struggling to support her family. She's an undecided voter in that key swing state and this election could hinge on her decision November 4. (BEGIN VIDEOTAPE)

WILLIS (voice over): Angie Jordan is one of the 760,000 Americans who have lost their jobs this year.

ANGIE JORDAN, UNDECIDED OHIO VOTER: I'm a single mom of three, and I was laid off going on two weeks ago. I'm currently searching for work, and I'm just hearing that there's a lot of qualified applicants out there looking for jobs.

WILLIS: Jordan is struggling to pay her bills and feed her children. To save money, she moved in with her mother a few months ago.

FAY HESS, UNDECIDED OHIO VOTER: Everybody's affected, the stores are affected. Not just that people can't afford to buy groceries and things they need, but the stores aren't hiring people.

WILLIS: Think this family's troubles won't affect you? Think again. They live in swing state Ohio and they haven't decided yet who they'll vote for president.

HESS: I changed my mind 50 times so far. Every time I think I know who I'm going to vote for, then I hear something else.

WILLIS: For Ohio voters, this could be a pivotal election.

CHARLES WISE, DIR, JOHN GLENN SCHOOL OF PUBLIC AFFAIRS: If the economy is the upper most in certain undecided voters' minds, that will probably break more toward the Democrats.

WILLIS: The state's unemployment rate hit 7.4 percent in August, the highest since 1992, and far worse than the national unemployment rate of 6.1 percent. Jordan says if she were voting solely on the economy, she would probably vote for Obama. But she's not sure.

JORDAN: Obama comes from a single mother. I feel like I can relate to him a lot better. So -- but, I'm undecided because I don't think he has the experience that we need.

WILLIS: Jordan says she wants to know what the candidates are really going to do for working class people like her.

(END VIDEOTAPE)

WILLIS: Senators Barack Obama and John McCain faced off in their final debate Wednesday night, the main topic of conversation, of course, the economy. With just over two weeks until the election, Jeanne Sahadi, senior writer for CNNMoney.com is here to break down what the candidates' economic plans mean for you.

OK Jeanne, let's start with this. These guys are having to rewrite their agendas. Start with John McCain, let's work through what his proposals are.

JEANNE SAHADI, CNNMONEY.COM: In the last week, he's come out with several proposals, a lot of them having to do with investments. He wants to help people, help Main Street, basically, deal with the knock out effects of the credit crunch.

WILLIS: How so?

SAHADI: He's proposed to have seniors pay a 10 percent tax rate on their withdrawals from their IRAs and 401(k)s. He's proposed letting people take $15,000 in capital losses, up from $3,000 for a couple of years. He's proposed to reduce the capital gains rate in half.

WILLIS: All right. One of the big things that I think folks are focused on is this 300 bill for folks who are in trouble with their mortgages. How quickly could that happen? Is it realistic?

SAHADI: Well, it's very much like the plan that's already in place under the Hope for Homeowners act. The FHA is already in the midst of buying up loans from lenders who are willing to write down those loans to current value. The difference with McCain's plan is that he's not asking the lenders to take a bite, he's saying, the government's just going to buy those loans wholesale and we'll take the write-down and we will assign 300 and 700 bill from the rescue plan to do that.

WILLIS: Wow. OK, let's go to Obama, now. What is his plan? How has it changed?

SAHADI: He has added a lot. Nothing has changed about his economic plan, he just added stuff, as did McCain, I should add. He's calling for a 90-day foreclosure moratorium to require financial institutions to do that, if they participate in this plan. So, give people a chance to get their mortgages with their lenders.

He's also saying let's give a job credit to -- worth $3,000 per new hire to businesses to encourage them to create jobs in the United States. He is also letting people -- he'd like to let people take early withdrawals from their IRAs and 401(k)s penalty-free. So, that means not a 10 percent penalty and stay still pay income tax on it.

And he wanted, as do a lot of Democrats in their stimulus plan, to extend the unemployment benefits. Two areas, though, where the candidates agree, and make similar proposals, they want to excuse seniors from making minimum required distributions from their IRAs and 401(k)s.

WILLIS: Now, this is key. I know a lot of financial advisers are focusing on this because if this doesn't happen, a lot of seniors out there are going to have to cash in some stocks and take very big losses. That's a critical component. I know they both agree on it, and folks in the industry also like it. You also say eliminating taxes on jobless benefits.

SAHADI: That's right, jobless rates are expected to go up. More and more people will be claiming the unemployment benefits. The McCain campaign estimates if you take the income tax burden away, that will add about 10 percent to the net pocket, take-home for jobless workers.

WILLIS: OK. Let's talk about "Joe the plumber," he's getting big headlines. Everybody loves this idea. Tell me, who will benefit him the most, do you think? You look at these plans, every day, Jeanne, you're very familiar with them. Who benefits?

SAHADI: Well, it's not clear to me because Joe is going to get a lot of small business tax credits from Obama, but if he makes more than $250,000 and he files under the individual income tax code his income taxes could go up. But, I should say that according to tax policy center, only -- fewer than 10 percent -- I'm sorry, fewer than two percent of small business owners actually are in more than 250k range.

So, McCain's campaign says no, no, all small business, at 50 percent of small business owners are going to get hit by this. I haven't done a full fact check on that, but it does seem unlikely that it's that many simply because the tax numbers suggest that there are not that many small business owners with such high income.

WILLIS: Jeanne, thank you for that.

Still ahead on OPEN HOUSE, our panel of experts, they are back and ready to answer your money questions.

And all aboard, we take on a bus full of finance pros. They are offering free advice. Stay with us.

(COMMERCIAL BREAK)

WILLIS: Saving crash, growing your nest egg, protecting your money, your questions keep rolling in. It is time for in answers. Back with us once again, Greg McBride, Amanda Gengler and Paul La Monica. Let's get to that first e-mail.

T.J. In Vegas asks: "I have a CD and bank account with Wachovia. Are both safe with someone new taking over or should I take my money out?" Greg, what do you say?

MCBRIDE: The money is safe and even better, the FDIC insurance limits have recently been raised to $250,000. In addition, even if you have accounts with both banks you'll have a six-month period of parallel insurance.

WILLIS: OK, great. So, there's more protection than there used to be. The second e-mail from David in Arkansas: "Is my IRA Safe with my credit union?" Amanda.

GENGLER: Yes, it is. Customers of credit unions have very similar protections to what you would have at a bank with FDIC insurance, up to $250,000. And credit unions also, when it comes to the bank savings, they also upted (SIC) their limits as well to the $250,000 for the savings account.

WILLIS: All right, that's good news. Betty in Arizona asks: "I retired last year with a very modest retirement account, and the past week I've seen my retirement account drop by $4,000. How is the bailout going to help me?" Paul.

LA MONICA: Yeah, as Amanda mentioned earlier in the show, there's obviously some tax benefits that could help you, but, you know, unfortunately, the market's going to remain volatile for a while, but the hope is that the bailout will stabilize the financial system which eventually should lead to a return to a better stock market. Because, that's still historically the best way to make money.

WILLIS: You know, people like Freddie are the ones suffering, here. Let's get to the next e-mail. They ask: "We've been retired for 10 years, our money is in stocks. Should we pull some of the money out or leave it in?" Greg.

MCBRIDE: Well, hopefully all of their money is not in stocks, because after all the key is to diversify, that's particularly true if you're in or close to retirement. Again, the idea is you want to align your investments with the goals and time horizon for when you need that money. Any money you have in stock is money you shouldn't need any time in the next 10 years.

WILLIS: In the next 10 years, that is a very long time.

MCBRIDE: Long-term investment.

WILLIS: All right. Alex in New York asks: "Why are credit card industries raising interest rates so high? I just got my bill and noticed the interest rate went from 15 percent to 22.8. I've never been late on payments." Amanda, is this unusual?

GENGLER: No, unfortunately not at all. The card issuers can and they are. Customers need to realize that they're looking at individual accounts and even if you have done nothing they may just decide that you are now a higher risk to them, so they can raise your interest rate, but remember, you can always call and negotiate that rate back down.

WILLIS: I think we're going to see more of that, frankly, with fees at banks, too.

Don asks: "I don't understand how freeing up credit will help us. We don't need more credit, we need to be able to pay down the debt we already have." Paul, I know a lot of people feel that way.

LA MONICA: Yeah, there's obviously a lot of bitterness. But, you know, one of things that has happened, there's been this like demonization of the notion of credit and debt because of the crisis. But, let's be honest, people that need a mortgage, that is the biggest debt, the biggest debt you'll have. Small business owners, people who are entrepreneurs that want to start a business, they need, usually, a line of credit in order to do that. So, it's not that credit is bad it's that irresponsibly not paying off your debts are what's bad.

WILLIS: It's definitely that grease that makes the system work. We got to have some of it, right? Let's go on to the next e-mail. Ophelia in Pennsylvania asks, "I'm 49 and have credit card debts of $26,000. Should I cash in my investments and pay the cards off or continue slowly paying down those debts?" Greg, this is a toughy and so many folks have such high credit card debt. How do you handle it? How do you pay it down?

MCBRIDE: Well, I see there are two things, here. I mean, the first is, where are those investments? I mean, I would not advocate rating retirement account to pay down those debts, but if you have $30,000 sitting in a bank savings account, earning two percent, by all means get it out of there, pay off that high interest rate credit card debt.

But, ultimately, you're going to have to form a budget, develop a plan to live within your means. I mean, where did that credit card debt come from? You don't want to be in the same position a couple of years down the road after having used up the savings to pay it off previously.

WILLIS: Yeah, it's a tough situation and I know a lot of people struggling with it.

Eric in California asks, "How safe is my 403(b) account held with my not-for-profit healthcare employer?" Amanda.

GENGLER: A 403(b) is similar to a 401(k) for teachers and certain non-profit employees. So, essentially people worry if their company goes bankrupt or if the financial company that they have the 401(k) through goes bankrupt and you just need to than your money is held separately from the assets of those...

WILLIS: From the trust, right?

GENGLER: ...institutions. I think, where a bigger risk is what's inside your 401(k) and if that could be losing value. So, now is probably the time that you'll want to look at it and make sure you have a balanced portfolio that is on par with when you plan to retire.

WILLIS: Nobody is protecting us from our own investment losses, unfortunately, there is no guarantee for that, I get that question all of the time. Greg, Amanda, Paul, thanks guys for joining us today, great answers, tough questions.

Up next, what some folks are doing to shore up their finances in this tumultuous time and how you can be next to get on that bus.

(COMMERCIAL BREAK)

WILLIS: With so much uncertainty in the economy these days it seems everyone is looking for sound financial advice. Well, the advice you need just might be rolling through a city near you soon.

(BEGIN VIDEOTAPE)

WILLIS (voice over): This is not your average New York City bus tour. This bus is full of financial advisors offering free advice at 75 stops around the country, like this stop in Harlem.

LAURA MATTIA, CERTIFIED FINANCIAL PLANNER: Well, we just want to heighten awareness. We want to tell people there are things they can do in this financial climate. There are people right now that are very scared about what's going on.

UNIDENTIFIED MALE: I just call then and they make the change, right?

UNIDENTIFIED MALE: Right, they're going give you choices from conservative to aggressive.

WILLIS: It's a bit like speed dating, or in this case speed fixing your financed. From debt to savings to investments, volunteers from the National Association of Personal Financial Advisers offer up their services, but what can be accomplished in an hour or less?

DAVE MUTI, REGISTERED MORTGAGE ADVISOR: Well, it may not be the type of advice you'd like to give over the long-term, but if someone wants to get a quick little snapshot, are they doing some of the right things to have an expert look over their shoulder and we are the do- it-yourself society, and that's sometimes mistakes for made.

WILLIS: Mistakes from Wall Street.

UNIDENTIFIED FEMALE: Especially just like investing in one stock. That's what you're leaving yourself open to.

UNIDENTIFIED MALE: Talk about diversifying the portfolio.

WILLIS: To Main Street.

ROBYN BOLDEN, HARLEM RESIDENT: I try to work on it, do my best to get out of the credit card debt.

WILLIS: And that's where "Your Money Bus Tour" comes in.

TOM BRADLEY, PRES, TD AMERITRADE INTUITIONAL: We're trying to help Americans take the first step toward gaining control of their financial future.

(END VIDEOTAPE)

WILLIS: The "Your Money Bus Tour" is sponsored by "Kiplinger's Personal Finance," TD Ameritrade Instructional, and the National Association of Personal Finance Advisors. But the bus is there to educate. No-fee advisers don't try to sell you services, just dispense advice. Now, to find out if the bus stops at a location in your area, check out YourMoneyBus.com.

Now, if the bus tour doesn't come to your town, but you want some help analyzing your finances, consider asking a local (INAUDIBLE) planner to give your retirement account a once over. Now, an hour- long session should give you a very good snapshot. Check out CNNMoney.com special retirement section for tips and strategies. Bottom line, though, keep your wits. The best way to do that is to arm yourself with information, understand what you're invested in by logging to Morningstar.com. Call up a snapshot of your found and compare to rivals of its category and its top holdings. Look, if your fund is not keeping pace, unload it and find one that leads its peers.

So, many of you let us know what you are doing to save during these tough economic times. Jennifer Besthke from South Sioux City, Nebraska sent us an iRreport. The first place she started cutting cost is the grocery store and her family of six, lots of food was going to waste from buying in bulk.

Now, she only shops for planned-out meals and has stopped buying soda. And that's not just a cost saver, Jennifer has lost six pounds. Look how cute those kids are. They're in on it too, helping to save money on gas by taking the bus to school. The family is spending more time together, shutting off the TV at night has brought them closer together.

We want to hear from you, send us your iReports at CNN.com/ireport. OPEN HOUSE will be here next, right here on CNN, and you can catch us on "Headline News," every Saturday and Sunday at 3:30 p.m. Eastern Time.

You can hear much more about the impact of this week's news on your money on "YOUR MONEY" with Christine Romans and Ali Velshi, Saturdays at 1:00 p.m. Eastern and Sundays at 3:00, right here on CNN. Don't go anywhere, your top stories are next in the CNN "NEWSROOM," have a great weekend.