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Anderson Cooper 360 Degrees
CNN MONEY SUMMIT
Aired March 28, 2009 - 20:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(COMMERCIAL BREAK)
ANDERSON COOPER, CNN ANCHOR: Welcome to our newest "360 CNN Money Summit." Since we began meeting Americans have learned for better or worse how to think in terms of trillions of dollars.
Fixing the economy has turned out to be a costly, messy, trying business, but President Obama is cautiously optimistic.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We have put in place a comprehensive strategy designed to attack this crisis on all fronts. It's a strategy to create jobs, to help responsible homeowners, to restart lending and to grow our economy over the long-term. And we're beginning to see signs of progress.
(END VIDEO CLIP)
COOPER: His plans, though, and those of the past administration coupled with fat cats acting well, shamelessly have all triggered a tidal wave of anger. And tidal waves can't build, they only destroy.
Our job tonight is to try to get past the understandable outrage and instead give you some constructive power. Tools you need to make smart decisions whether it's your own bottom line that needs fixing or the country's.
So let's turn things over to chief business correspondent Ali Velshi, who starts us off with a look at the President's new budget.
ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Anderson, funny thing, this week was supposed to be about selling the new federal budget. And we will be talking about that but for the most part the budget message was drowned out by some fairly good news.
Signs that some of the President's programs, the Federal Reserve action, the better angels of human nature, greed, you name it, something is steering us back from the brink. At this summit, we'll look at why and how the trillions of government dollars, your tax dollars that are being poured into fixing the economy may finally be working their way into helping your bottom line.
We've got an excellent panel of some of the best minds on money and we'll get their thoughts in a moment. But there were a few pieces of the economic puzzle recently that showed that things might be getting better or at least not getting worse. Let's start with housing, home sales picked up in January compared to February and this might be why. Come over to the wall with me, I want to show you about housing price affordability.
Let's look at California because it was such an exaggerated state in terms of housing numbers, but let's see how things have changed since July of 2006, that was the peak of the housing market. The median price of a home in California back then was about $567,000. That meant that half of all homes sold for less than that price and half sold for more.
The interest rate for a 30-year fixed mortgage with 20 percent down if you have good credit was about 6.8 percent back then. And that meant that you're monthly mortgage payment if you put 20 percent down was about $3,000 -- $2,964 back in July of 2006.
That same home today, let's take a look at that, the median price of a home in California is now $247,000. And interest rates are very low now, the lowest that we've had in more than five decades. A 30-year fixed mortgage, if you have good credit will cost you about 4.6 percent. And that means that that same house will now cost you about $1,000 a month versus almost $3,000 in 2006.
That's one part of the picture.
Let's show you something else, the stock market. Let's look at where we started this year. The beginning of 2009, the DOW, which is what we often look at because it's easy to track was 9,034.
And we've been on a relatively steady decline ever since then, getting down about 28 percent to 6,517 on March 9th. But look at what's happened since then. Look at that uptick in the market. After giving up about 28 percent since the beginning of the year, we're up about 20 percent since then.
Now, we can't call any of this a trend, but at least there's hope in the housing and the stock markets and those are two of the three things that make you feel wealthier. The third -- and the third is probably the most important so this is worrisome hasn't shown any improvement at all and that is jobs.
Another 652,000 people filed for unemployment benefit this week; that brings the overall number of people receiving unemployment benefits to an all-time high. And projections don't show the job situation improving any time soon, even the most positive projections. The Congressional Budget Office is a nonpartisan organization that looks at the trends that are being put out, the efforts that are being put out by the administration, and this is what they have said.
Here's where we are right now in this country. The unemployment rate is 8.1 percent. I'm going to show you what their projections are for the next several years. Let's take a look at this. It's a range and that's why this line tends to change in its width.
But for the end of 2009, it's saying the best-case scenario is that unemployment will be up from where it is now, 8.5 percent at the high end, or 7.7 percent at the low end. By the end of 2010, take a look at this, 8.1 percent at the high end and 6.8 percent at the low end.
By the end of 2011, the Congressional Budget Office says unemployment will be somewhere between 6.5 percent and 7.2 percent. By the end of 2012, we're still looking at unemployment of 6.3 percent at the high end, about six percent on the low end, and by the end of 2013, 5.4 percent, or 5.3 percent. That's kind of where we started this recession. We were around five percent.
So according to the CBO, we may not get back to those employment levels until the end of 2013.
So you've got housing, you've got the stock market and you've got the jobs situation; and you put that all together and we want to get our panel's take on where we stand right now.
Let's start with you David Gergen. You've seen all of this evidence. Clearly there's a different level of tension out there about the markets. About everything that's going on in the economy.
DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: Well, it's certainly welcome and I think people are breathing a sigh of relief. What we don't know is whether it's real, we don't know if it's going to last. Have those AIG executives suddenly gone out and spent all their bonus money and we're seeing things come back up?
So we don't know for certain where we are, but it does not feel as if we're falling off a cliff now.
VELSHI: Monique Morrissey, you're an economist; are these signs of life now that we're talking about, are they real, are they anomalies? Should we be looking for hope in them?
MONIQUE MORRISSEY, ECONOMIST: We haven't hit a bottom but there might be a slow down to how far we're thinking but I see these as sort of temporary positive signs that we're likely to have a bumpy road ahead still.
STEPHEN LEEB, ECONOMIST: I think one thing to bring out, is that there's traditionally about a six-month lag between when the Fed really steps on the accelerator and tries to loosen monetary policy and when it starts to affect the economy.
The Fed did not get serious about promoting growth until September so we're six months past that. And right on cue, we're starting to see big numbers.
The real issue is this is different than other recessions and I think it is. Because at other recession even in 1991, the banks were there, the banks were there to loan money and to continue to foster growth.
We've got to solve this banking problem if want these signs of life to continue or to just flicker out. If we want them to turn into a bonfire like they did in past periods, the banks have a major role to play.
VELSHI: And we're going to talk in great deal detail about this banking plan and how it's worked.
Ryan Mack, I want to ask you, you deal -- you're a financial manager, you deal with people's money, are these areas of improvements showing some hope for your clients? Are they still very, very worried or are people thinking that these -- there might be opportunities here that they haven't seen in the last several months?
RYAN MACK, PRESIDENT OPTIMUM CAPITAL MANAGEMENT: Well, I have been saying for a few months now, the stocks are on the cheap. If you look at individuals walking down the street, and their shopping habits, if you see a 50 percent off for sale sign. They don't run away from it. We usually tend to go to the 50 percent sales sign.
While we actually have better habits in our shopping than we do with picking our stocks, I mean risk 50 percent cheaper than we were in October 2007.
VELSHI: Let me actually just interrupt you there. I want to show you about that.
MACK: Yes.
VELSHI: Because October of 2007 was the height of the market as we have gotten; 14,164 on the DOW and take a look at what's happened. Now you can see there are little blip it wasn't straight down. There were times when it went down and it went back up. And we had these little ridges, but look at what happened, this was September, October, 2008.
That's really where the heart of the credit crisis hit and look at what happened in the market there. We really reset at another level and we've been seeing that going on. And you see that little blip that I showed you a few minutes ago right at the bottom right of the screen.
Now, let's talk about what Stephen was just discussing; all of the stuff that has been done by this administration to try and stimulate this economy. We broken down some of these for you and we want to give you a sense of what effect they may be having.
First of all, you remember TARP, a lot of people don't know the TARP is the same as the bailout. This was the $700 billion plan that was passed back in October, the beginning of October. That was the bailout to the financial institutions and that's been going on for a few months.
Then there was the stimulus program. We heard about that $787 billion; that happened in February of '09. And we started to see some of the money from that trickling into some of the projects and some of the states that have really needed that.
Then there was the housing plan that also came out in February of this year. About $75 billion that was meant to help people refinance mortgages if their homes were maybe a little bit underwater or completely modify their mortgages if they're homes were as much as 50 percent under water. It still doesn't help a lot of people who are in foreclosure but it seems to be having some effect.
And then we saw and Stephen was sort of alluding to this, we saw a major intervention by the Federal Reserve last week, a trillion dollars, more than a trillion dollars being put into the system, much of it being directed to Fannie Mae and Freddie Mac, which used that money to buy mortgages from you're bank and making loans more affordable.
That was more than a trillion dollars and it had the effect of bringing mortgage rates down to these records lows that we were just talking about, around 4.6 percent for a 30-year fixed mortgage.
And finally, we have just started this week to hear about the Toxic Asset Relief Plan, the bank plan that could provide up to a trillion dollars to the banking system. That could be money that those banks can use to lend.
And those are the things that we have seen done. There have been others.
Walter, ultimately our viewers want to know, what is this all going to do for my life?
WALTER UPDEGRAVE, SENIOR EDITER, MONEY: Well, I think that the most important one right now is this Toxic Asset Relief Program which was just announced or they call this the Public Private Investment Partnership or PPIP. So I guess it's Tim Geithner and the PPIPs, you know our version of Gladys Knight and the Pips.
If this works, it will do two things, one it will help value some of the assets the banks hold, and nobody really knows what they're worth. So that in and of itself will be good.
And then if we can move some of them off the banks' balance sheets that will give the banks more capital and allow them to lend more freely.
So it really depends on whether or not this takes hold and whether it works, and if it doesn't that would be a very bad thing and we may see Tim Geithner on that midnight train back home Larchmont.
GERGEN: Can I ask for Ryan Mack, can I say something. Do you think there's an Obama effect that's starting to show up a little bit in some of these glimmers of hope? Is there any sense which if they want the President to succeed, they want to go a long way and they're persuaded by him, and he's been out on television a lot, and there is sort of he makes them a little bit more confidence and little more willing to invest?
MACK: I think his campaign for the budget was brilliant. I think for the fact that he was going around talking to people on Jay Leno, talking to individuals and getting inside their homes, this is what's going to turn the economy around.
It's our hope, it's our faith in believing and acting out on our belief that's actually going to start boosting consumer confidence and turn the economy around.
MARY SNOW, CNN CORRESPONDENT: But one other thing I did want to say is that despite all this money being thrown at the markets, there was a bit of confidence when the details came out on this Toxic Asset Relief Program. And that did bring some relief to Wall Street. Because if you take a look at the DOW, the day that Tim Geithner first introduced this plan back in February, the gains that the DOW has made to this day have just about recovered from when the market was sinking.
MACK: Right.
SNOW: And yes there are a lot of factors in that. But Wall Street wanted some details even though there are still questions about it.
LEEB: But there's no detail. I mean, unless you have money, it's all about the money. I think I've heard that somewhere before. And there are no plans for getting additional money from Congress and it's ridiculous without it.
VELSHI: All right, let's figure out what we do know about the Toxic Asset Relief Plan and we're going to pick up this conversation next.
And later, we're going to talk more about the outrage at AIG. How anger over millions could stymie actions on trillions and lead to a lot more misery. That and more when our "360 CNN Money Summit" continues.
(COMMERCIAL BREAK)
(BEGIN VIDEO CLIP)
STEVE KROFT, "60 MINUTES": Your Treasury Secretary, Tim Geithner has been under a lot of pressure this week and there have been people in Congress calling for his head. Have there been discussions in the White House about replacing him?
OBAMA: No.
KROFT: Has he volunteered to or come to you and said do you think I should step down?
OBAMA: No. And he shouldn't. And if he were to come to me I would say, "Sorry, buddy, you still got the job."
(END VIDEO CLIP)
VELSHI: President Obama making news on "60 Minutes" on CBS. He stuck by his Treasury Secretary from the very beginning to well, the middle of the beginning.
The big picture here is not rosy, but perhaps not as grim as it was. One reason, well there's no more waiting to see the details of Tim Geithner's Toxic Asset plan.
Let's take a look at what we know about this plan so far. Walter described it as the Private Public Investor Partnership, PPIP.
One of these private investors will partner with the government to buy these toxic assets which are sitting with the banks. The Federal Reserve and the FDIC will provide financial guarantees to provide leverage for these buyers. In other words they can buy a lot more of these assets with a little money down because the FDIC and the Fed will be guaranteeing some of these purchases.
The plan is initially to buy up about $500 billion worth of these toxic assets but it could be up to a trillion dollars, giving banks more money to loan out.
Now, if you haven't quite followed that, let's approach this a different way. Think about the toxic assets as something that is cluttering the banks balance sheets. They need it out of the way and they want some money for those toxic assets in order to get back to the business that they are used to doing.
So let's look at the toxic assets as an old dresser, the same way you might have one of these things. It's in pretty bad shape, you figure it's got value somewhere down the road. But right now you need it out of the way and you need the money for it.
So you put it out at your flea market or yard sale or whatever the case is. But there's always one of these guys, at the yard sales, the one who shows up before everybody else because they've got an eye for stuff that they can make some -- get some value out of.
So into their truck goes this old dresser, your toxic asset, you got some money for it. Not anywhere near what it's probably worth, but you got something and you move on, well these guys take this truck they get back to their -- they take their dresser, they get back to their place, they take it out, let's get rid of them.
Let's even get rid of that old dresser because by the time they're finished with it and remember this is their business, they're good at it. They have made that old ratty dresser into a nice shiny one. And the next thing is you're walking down the street and you see it in the window of an antique store. Your toxic asset is now an attractive asset.
Now, let's talk about whether or not this is a plan that is likely to work. Stephen Leeb, you really don't think that this is the answer?
LEEB: No, I mean not the way it's set up now, Ali. You need money. I mean, the point is, I mean, you had a graph at the beginning of this show. Home prices in California have declined about 60 percent, 70 percent, whatever the number, a huge amount. That's great news if you're trying to buy a home today. It's horrible news for the banks that are holding the mortgage based on $350,000.
GERGEN: Ali, it's the only plan we have right now, we all hope it's going to work, we don't know.
There are two big questions. If you take that old dresser and try to fix it up and then you got to go resell it, is it still a piece of junk or is it truly worth buying at that point?
The government's betting that it's going to be worth buying. What if it's not? What if it remains just a piece of junk? Then it hasn't worked. The other thing is what about the guy who's driving the truck? Are you're going tell him (INAUDIBLE) and by the way, we're going to take it 90 percent of any profit you make on it and put you out of business.
Or you're going to let you keep you're profit. Now nobody wants to start a trucking company until they're sure how much of the profits they can keep. And right now a lot of people are going to be driving those trucks. These hedge funds and the private equity firms aren't quite sure, given the AIG mess and the uproar over who made money in the AIG deal.
Are they going to be able to keep their profits or not? Is Washington going to be able to guarantee it?
VELSHI: Monique, you don't think that -- you're not too worried that the private sector is not going to get involved in this; you think this is a sweet deal?
MORRISSEY: I think it's a sweet deal. I mean you say it's a public private partnership, but the public is putting most of the money on the table. And we'll get most of the losses if there are losses. And I think at the downside risk is huge. I don't think we know how much these things are worth.
And I think that it could be taxpayer problem in the long run, but it's also a political problem. I actually am more concerned that we need a second stimulus plan and that if this is bungled and it doesn't work, it's going to be harder to do other things that we need to do to fix the economy.
VELSHI: Let's just talk about this because we've all been discussing this, what do we think is supposed to happen? If this all works. If the government got what it wanted and the public private partnership works, let's discuss what the outcome could be.
One, is that you're banks which got rid of the dresser have money and that money can be used to loan to you, that's one goal.
Number two, the stock prices go up, these banks have been so weighed down by these toxic assets that we have started to see even with the news that there might be a plan, an increase in the price of those stocks, and by the way, stocks across the board, so that's another potential benefit from this.
And the third one, is that the government if the deal does work could profit from this and when the government profits, that's good for you because it's your money that they're using to invest in this whole thing. That's what could happen.
Donna, will it happen?
DONNA ROSATO, "MONEY" MAGAZINE: Well, as you said, that's the only plan we've got right now so that's the plan that we're going to go with and we'll see. If this plan doesn't work, then the next step may be to nationalize, take over some of those banks and those assets and that will be the next step and that'll get us down of the road to a solution.
VELSHI: Mary, you touched on this earlier when Timothy Geithner came out initially with the announcement of the plan. Stephen Leeb says we still don't have enough detail. But take a look at that first day, and you'll all remember this one, we didn't -- really didn't have any detail back on February 10th.
This is what happened to the DOW, it dropped 381 points because we thought we were getting a detail and there wasn't much meat on the bones of that one.
Then when he finally came out with the plan with more detail this past Monday, take a look at what happened to the market on that day. A big -- great big hug for Wall Street from the market, 497 points, that was an increase of almost seven percent on the DOW and on the S&P 500.
So clearly somebody thinks there is enough in here, Leigh, that we've got somewhere to go. I mean, we're hanging on to whatever we can get at this point.
LEIGH GALLAGHER, SENIOR EDITOR "FORTUNE": I think that's exactly the problem though, I think that the market is so desperate for any whiff of positive news. I mean, now on Monday it was an overreaction.
GERGEN: In the upside...
VELSHI: And possibly an overreaction to the down side.
SNOW: And overreaction out of, as you said, desperation and as David was saying, there's hope, because what else is there out there? And in fact to one person though who said, one thing that he thought might be helpful, even though there's a lot of doubt, he said, an analogy and not mine.
But picture going down a street, a real estate agent saying, ok, I'm going to put a bid on these houses? How many will sell? We don't know. But at least there will be a bid, because this is just a black hole in terms of these assets?
MACK: I don't buy into the fear mentality. I mean, in 2007, things were not as good as what they seemed they were. Now they're not as good as they seem they are. We always overshoot on the down side and always overshoot on the upside. And at the end of the day you can go to Miami right now and for $150,000, an $8,000 tax credit and 4.75 percent, you can get yourself a beach front property.
At the end of the day there are people 90 percent, people are still employed. So we have to understand that there are people out there who can still pounce on these prices to support the housing market.
VELSHI: Well, let me tell you. All of the discussion that should have been happening about this or even for that matter about the budget got -- nearly got drowned out last week.
up next, we're going to talk about AIG -- about corporate jets and arrogant CEOs. And they are all the rage and the outrage but this week some of it seemed to cool down. And we'll look at why and the other outrage bombs that are waiting to go off.
(COMMERCIAL BREAK)
REP. BRAD SHERMAN, (D) CALIFORNIA: Can you give us a chart for each TARP recipient.
TIMOTHY GEITHNER, TREASURY SECRETARY: Congressman you're absolutely right this goes well beyond AIG. And the President proposed on February 4th a range of reforms to brought composition practices including proposing that boards of directors...
SHERMAN: No, Mr. Secretary, it is my time and I'll reclaim it. Are you going to give us the chart, or are you going to hide the ball?
GEITHNER: I'm not going to hide the ball.
SHERMAN: Are you going to give us the chart?
GEITHNER: I will reflect on the suggestion you made and see if that is reasonable...
SHERMAN: In other words you won't commit to telling the American people how many folks at Goldman-Sachs or AIG are going to make a million dollars this year?
GEITHNER: Congressman, I will think carefully about your proposal.
SHERMAN: Thank you for thinking. Let me move, well I'll move on to the next question.
(END VIDEO CLIP)
VELSHI: That's Democratic Congressman Brad Sherman roasting Secretary of the Treasury Tim Geithner. The fire has been fueled by voter outrage over AIG and other Wall Street excesses.
Now, we talked about the other outrage bombs that may be developing.
And let's talk about something you may have heard or you may not have but might hear more about it. And it's a discussion about counter parties.
Now, we have talked about AIG many times as being too big to fail. Why -- because they have 74 million policyholders in 130 different countries.
But that is not all there is to it, there is something -- these things called credit default swaps that AIG was in the business of trading. Credit default swaps are like an insurance policy against a financial tsunami hitting. So for all of these mortgages that were resold and resold, someone was buying insurance to make sure that they get paid if they went bad. And look who the companies are who were buying those insurance-like products from AIG: Goldman-Sachs, Bank of America, which now owns Merrill Lynch, Societe General of France, Deutsch Bank and Barkley's Capital.
Now, let's just replace those with the idea that they were homeowners buying insurance against a hurricane hitting their home. They were all giving money to AIG on the expectation that if something were to happen to the value of the underlying asset or security that they held they would get a payout.
And that is exactly what happened. The financial tsunami that everybody was counting on not happening actually did happened and that $182 billion of your tax money that has now gone to AIG, let's take a look at some of the big places where that money has gone.
Goldman-Sachs received almost $13 billion of that. Bank of America, Merrill Lynch about $12 billion; Societe Generale almost $12 billion; Deutsch bank, almost $12 billion; and Barclays of more than $8.5 billion and that's not all of it. But the bottom line is those were policies if you will that came due, AIG needed to pay them and that's why the government had to get involved.
Stephen Leeb, let's start with you on this one. I think there are a lot of people, because that's such a complicated topic, who don't really understand that that's a big deal.
LEEB: I have to add one thing and this is what made it much, much worse. I mean, Wall Street is just a bunch of Atlantic City crazed gamblers, because not only could you buy insurance against your own house burning down, you could buy insurance against your neighbor's house burning down.
MACK: And it's seems like from the graph -- Goldman Sachs is essentially with additional assistance from the government, they're almost double dipping in terms of profiting from this recession.
So I think individuals are upset. But I think the main part, even of the AIG bonuses, $165 million is very small amount of numbers, but there are the union worker right now who's working on the line, who is worried about his benefits, and worried about his job, just got a salary cut. And he took his hard earned money to pay and put his money into the system and now he finds it out that those money isn't going out to afford salary bonuses. That destroys consumer confidence and making individuals...
(CROSS TALK)
UPDEGRAVE: The real scandal here isn't that people bought these, the real scandal is that we have a company, AIG, that was able to have all these things on the book, and nobody knew how much they were, and nobody knew where they had them adequately backed up with enough capital because they're all outside conventional insurance. VELSHI: Right. And instead of working -- I'll just interrupt you -- if they were conventional insurance, they would have had to have a certain amount of money in reserve.
UPDEGRAVE: Exactly.
VELSHI: If you're insuring rigs or homes against hurricanes, you have to have a certain amount of money to pay out if that hurricane were to hit. Because this wasn't regulated in the same way, it's not really -- I keep on doing air quotes -- because it wasn't really insurance.
LEIGH GALLAGHER, SENIOR EDITOR, FORTUNE: Another big issue here is that because of AIG, it wasn't a depository institution. The bodies that regulate insurance companies are state guarantee associations and state insurance regulators, you know. And in the other extreme, you have a company like Citi who's regulated by five different agencies, the OCC, the FDIC, the NYSE, it's a whole alphabet soup.
But AIG was not really -- nobody was watching and nobody was making sure that it wasn't able to get so big that it could pose this risk to the entire financial system.
GERGEN: Excuse me, Ali.
We have had a casino culture in this country now for a while. It's not the AIGs that have been playing that culture. A lot of us have been playing at that board and some of them winning big over the last years. A lot of pension funds made a lot of money because the stock market went up in the way it did.
But I thought the president made an important point in his press conference this past week, and that is it's time to stop demonizing everybody on Wall Street, everybody who's in the financial industry because they're not all bad people. A lot of them are good people and by the way, the whole Geithner plan we have been talking about depends upon cooperation and partnership with the private sector. If we're going to demonize all these people, they're not going to play.
MONIQUE MORRISSEY, ECONOMIST, ECONOMIC POLICY INSTITUTE: I think outrage is perfectly warranted. When this process started, nobody knew how much it was going to cost. We keep pouring more money into it. It's true that it's one-tenth of one percent of the amount that we put in there but that just reflects how much we put into it.
UPDEGRAVE: I agree. I mean some of this outrage -- I don't agree with all of it -- a lot of this is just pitchforks and waving torches in CEOs faces. But some of the outrage is acceptable. The question is what do you do with it?
And Congress and passing a ridiculous law that you're going to tax these bonuses at 90 percent is just absurd. I mean if you could say, "It's not going to harm anything, fine. Let them have their fun." But just think back to the A&T which is a real serious problem that we're dealing now. That was enacted in 1969 because 155 households Congress deemed weren't paying enough taxes so they enacted this law that now has ensnared millions of people and has really screwed up the tax system.
So it really does have consequences when Congress goes off halfcocked and does these things.
VELSHI: But leaders -- you know, there has been a proposal by the government to regulate more of the financial system, the non-bank regulators. And if you look back over the last year, one of the most successful regulators this year has actually been the Federal Deposit Insurance Corporation, the FDIC.
But already, we're hearing from people who say this is a power grab the government and it's going to -- they'll be allowed to seize companies and it's unconstitutional.
GALLAGHER: You know, I think there's actually widespread agreement that lack of regulation is what got us into this mess and we are going to need more regulation. I think that's kind of -- everybody is in agreement there. The problem is, you can regulate, but regulation isn't going to solve the next financial crisis.
If you look at what we did in -- after Enron and WorldCom, we enacted Sarbanes-Oxley. And that did absolutely nothing to prevent what happened now. So I think regulation is needed; I think there will be a consensus about that. You're always going to have the people you know, shouting and screaming that government has to get out. But what's scarier, government having too big a role or what we're going through right now?
VELSHI: Later on in the summit, we're going to tackle the jobs question and how this administration is dealing with it.
Next though, a bit more good news, believe it or not, on the housing front.
(COMMERCIAL BREAK)
RANDI KAYE, CNN CORRESPONDENT: Hi, I'm Randi Kaye. The 360 MONEY SUMMIT continues in a moment.
First, a "360 News and Business Bulletin."
A devastating suicide blast in Pakistan, the bomber struck a mosque, killing at least 50 people and wounding more than 100 others. The attack is believed to have been carried out by a radical Muslim group.
A "360 Follow" to this outrageous video: the Dallas police chief has apologized for the conduct of Officer Robert Powell, who stopped a speeding car in a hospital parking lot, drew a gun and detained two men rushing to the bedside of a dying family member. One of the men was NFL player Ryan Moats. His mother-in-law passed away during that confrontation.
And on Wall Street, the Dow dropped 148 points today, the Nasdaq fell 42 and the S&P lost 17 points. But all three were up for the week and have rallied for most of the month.
Those are the headlines. The 360 MONEY SUMMIT returns after this.
(COMMERCIAL BREAK)
(BEGIN VIDEO CLIP)
OBAMA: There are a whole bunch of folks out there who are not about to walk away from their home but who are getting killed right now because their home values have dropped drastically. They're still making payments, but they're in trouble.
(END VIDEO CLIP)
VELSHI: The president this week in a virtual town hall meeting that he held at the white house.
Many Americans are struggling to hold on to their homes, but as we've mentioned there's some hope that if things aren't getting better, well at least, they may not be getting all that much worse.
Nationally, existing home sales were up in February. That's good news; that was compared to January. If you take February compared to a year ago, well the news isn't so good.
Let's take a clearer look at those numbers on a region by region basis. So that's the national number. From January to February, there was a 5.1 percent increase in the sales of existing homes. We use existing homes as opposed to new homes because 90 percent of the houses that are sold in America are existing homes.
Let's break this down across the country. Let's start here in the northeast. Home sales in the northeast were up 15.6 percent from January to February. In the south, they were up 6.1 percent. In the Midwest the increase was only one percent. And over in the west, the increase was 2.6 percent. Now that is January to February of this year.
Let's take a look at what those numbers are compared to a year ago. Again, let's take it to the northeast. While they were up 15.6 percent for the month, they were actually down in the northeast home sales by almost 15 percent.
Let's look at the south. The one-month increase was 6.1 percent but compared to a year ago, home sales were down 11.2 percent.
In the Midwest, one month's of sales were up one percent, but a year, down 14 percent.
And finally in the west of the country, one month -- I showed you this, up 2.6 percent. But take a look at home sales in the west compared to a year ago, up 30.4 percent. So things are very, very different across the country.
These are the number of homes that are sold, the percentage of homes that are sold.
Let's look at the thing that you're concerned about if you're buying a home. I just showed you that a year ago, compared to a year ago, we're up in home sales in the west, 30 percent. Take a look at the prices compared to a year ago, they're down 30 percent.
Much of that is because of the fact that so many homes in the west, in Arizona, in Nevada and in California are homes that are in foreclosure so people are moving in with those low interest mortgages and they're able to buy homes at a big discount.
Let's take a look at the Midwest. While sales are down 14 percent compared to a year ago, the prices are only down 7.8 percent.
And in the south, sales are down 11 percent compared to a year ago, prices are down about 10 percent.
And in the northeast -- this is kind of interesting -- sales are down 14 percent or 15 percent from a year ago, but prices down only 4.8 percent from a year ago.
That's a lot of numbers to digest, but I think we have to think about this very carefully because so much of our economic recovery is going to depend on the state of the housing market, the ability to deal with for foreclosures and the ability of Americans to buy homes.
Donna what do you make of that?
ROSATO: For the housing market to continue to improve, you need prices to start coming up, maybe we're seeing a bottom here, but you also need inventory to stay low. And the number that I was worried about, you saw housing starts -- new home construction jump up about 22 percent from February.
(CROSS TALK)
VELSHI: ... because if we're not selling a lot of houses to see construction on new homes, that sort of just adds inventory to all -- I think we have a nine-month backlog of new homes.
That's a bit worrisome.
ROSATO: That's right. You still have an inventory overhang and one thing that's helping, of course, still is mortgage rates are low, but they have to stay low for this to continue. And as you pointed out, real estate is very local. So it depends on where you live.
The Carolinas, they never had as good run up. Texas never had a big run number. California had a big run up and then a big bust, early. So you're starting to see a bottom in some of those places.
VELSHI: Let's get a sense of whether or not, at least forecasters think home prices are bottoming out. Let's look at something we all the S&P/Case-Schiller report. That is a survey of major cities; it doesn't include everything across the United States but it's major Cities.
Let's take a look at where we have gone, starting back in 2002. That's kind of the increase we have seen in housing prices, peaking around 2006 and starting to come down. Now the report doesn't forecast what's going to happen, but the bets on where housing prices are going to go are actually traded as futures. And the futures market indicates that the housing market continues to decline well into 2010, possibly into 2011 before it starts leveling out.
We would love to see reactions in the housing market, the way we have seen a bit of a reaction in the stock market. I mean, look at this. We're all excited about the fact that we've had a 20 percent gain in a few weeks in the stock market.
But Monique, the bottom line is the reality shows that we could have low home prices for a very long time in this country?
MORRISSEY: Yes, we could. In fact, I mean, in many areas, we're still overvalued depending on the measure. You can compare home prices now to where they would be if they tracked inflation or where they would be if they had tracked rent.
By either measure, the bubble was probably about $8 billion and we maybe unwound about $6 billion worth of it. So we still have a ways to go and we could also overshoot or undershoot, I should say.
And I don't normally provide very useful advice because I'm an economist. But one thing if you're about to buy a house in your neighborhood, you should -- there's 20 metropolitan areas at S&P/Case- Schiller, you can look it up.
You can check and see -- check from the mid-'90s until now. And if you still -- if it's gone faster than inflation, it's probably still overvalued.
It's risky.
STEPHEN LEEB, ECONOMIST: I hate to disagree. I mean, for every two different economists and you'll have two different opinions.
GERGEN: How about five?
(CROSS TALK)
LEEB: Two would be very small. But the housing affordability numbers are really off the chart in terms of how affordable housing is today.
VELSHI: What you're talking about, that was that thing...
LEEB: Exactly.
(CROSS TALK)
VELSHI: ...in California houses where we showed that a home in California today compared to 2006 is a lot more affordable.
LEEB: Right. But one thing I would be watching is that red line in the futures market. If that starts turning up, I would say the signs are we're almost in the clear. I wouldn't watch the market. I mean, I didn't know about that until right now. That is what I would be watching like a hawk.
VELSHI: Let me ask you this, then, is this -- are we -- whether it's housing, whether it's a housing plan or whether it's a stimulus bill or whether it's nationalizing banks, are we putting a false floor on this? Are we going to ever really get a sense of what anything is worth?
GALLAGHER: Well, you know, a lot of people do think that we should just get out and just let things fall and capitulate and then pick up the pieces after that.
Now, I think that actually that theory has lost a little bit of credibility now that we have seen how bad things actually are.
ROSATO: Can I throw in a bit of good news?
I was at a conference in D.C. two weeks ago talking with a lot of the HUD housing counselors and they said incredibly that lenders are so much more willing to work with homeowners who aren't in trouble yet and to help those folks. It's just a sea change from before. So I think that's a bit of good news.
VELSHI: But we haven't seen a bit of gain.
MARY SNOW, CNN CORRESPONDENT: But you were talking about unemployment levels, and as you were saying, the projections are that we'll still see unemployment to continue to rise for quite some time and how is that going to affect the housing market going forward?
VELSHI: Right. Everybody -- every extra person who is unemployed may be one more person closer to not making a mortgage payment.
We have seen a real uptick in refinancing. We've obviously seen it in home prices.
For people watching this, Walter, should people be looking at mortgage rates in the 4.6 range and saying time to get in?
UPDEGRAVE: Well, I know I'm thinking about refinancing myself so yes. I mean mortgage rates are at these very low levels and if you refinance, you can save some money, you're able to spend more.
So I think that will be good, not just for individuals, but it would also be good to just get things moving again.
MACK: There are many people out there who can purchase homes at these low prices right now. Foreclosed properties, they're going up because people are recognizing opportunity. Crisis means danger, but it also means opportunity.
So, I think we need to capitalize on that and there're a lot of people out there who can.
VELSHI: Up next, we're going to talk about the toughest nut to crack in this economy -- jobs.
Have we hit the bottom in the jobs market? Has the stimulus program made a difference or will the layoffs continue?
We'll have questions for the panel as the CNN MONEY SUMMIT rolls on.
(COMMERCIAL BREAK)
(BEGIN VIDEO CLIP)
VELSHI: So the aim of your administration is to create between 3 million and 4 million jobs with these infrastructure investments?
TIMOTHY GEITHNER, TREASURY SECRETARY: The basic objective is to try to make sure that we get growth back on track and businesses back in the position where they're hiring people, paying them more, expanding their investments. That's the essential objective of this program.
(END VIDEO CLIP)
VELSHI: But the question remains. Is the administration moving aggressively enough in putting money in the right place to right the dismal job situation that we're in?
Word this week of more layoffs at IBM. The state of New York printed nearly 9,000 pink slips; things like that are happening all across the country.
On the other hand, you're starting to see construction outfits rehiring as the stimulus money starts to make its way into the economy. But by and large, the jobs picture is the darkest part of the economy right now.
We're back with our panel.
Monique Morrissey, again, you're an economist.
Do these things work?
MORRISSEY: I think that they're doing exactly the right thing. I think the stimulus was excellent. I think that their budget plan is a good one. I just don't think it's enough.
And I think that what Walter said earlier, can the government do anything? It's a good point. That's one of the reasons that I'm concerned that we're throwing so much money at Wall Street, financial markets because people are going to get burned out and they're going to say we can't afford to spend anymore. We have to spend the money where it's working.
VELSHI: Let me pick up on that.
Let's talk about the jobs that have been created during this recession because we've all only talked about jobs losses. Jobs losses, that's what hits the headline.
Let's take a look at where jobs have been created. Since the beginning of this recession, at the end of 2007, we've seen half a million jobs created in health care. We've seen almost a quarter of a million jobs create in education. Federal and local government, and there are different opinions as to how much you want to see in government hiring, but 130,000 jobs there.
And in mining and utilities, 59,000 jobs. But if you look at that mining and utilities one, it gives you the clue about what I'm going to tell you next. That was because energy costs were at record prices in the middle of 2008.
Let's look at how those job gains actually break down. Look at health and education, two of the strongest areas; the single two strongest areas in the economy. Look at where all the growth was, it was all in those green bars in 2008. Since we've gone in 2009, we started to see those drop off and a little bit of a pickup in the last couple of months.
Same thing with government, it was much stronger -- the hiring at the beginning of 2008; it kind of dropped off in 2009. Mining and natural resources, oil, things like that, wow. When oil was $147 a barrel, you can see that they were hiring every last person that they could get their hands on. But these projections are for the rest of the year take a look at that.
We've already got the projections in, the real numbers for the first quarter. Take a look at that. We're not looking at that sustaining us for the next little while.
The issue is, while it makes sense to retrain and get the job you want to get, where are we actually going to see the employment that makes up for the more than 4 million jobs we've lost since the beginning of the recession.
And Monique you made a very important point. You don't need to just be even. You need to be gaining 100,000 to 150,000 jobs a month just to keep up with the number of people who are added to the working age population.
So David this is not just an economic challenge. This is a major, major political challenge for this administration.
GERGEN: Absolutely. The news is it's coming out from Detroit, the restructuring and shake-up that the government is doing with the Detroit automobile industry I think only emphasizes there's a lot more pain ahead for workers and the more traditional manufacturing jobs.
And the scariest thing I think we've seen in this whole program is the (INAUDIBLE) up there from the Congressional Budget office saying it was going to be 2013 before we get back to the unemployment numbers we had before this recession started. That's four more years of high unemployment. That's a really scary number.
VELSHI: We've all talked a great deal about the savings rate. We've talked about this in the past that one of the things that may make this recession worst than prior recessions, particularly back in the '80s is that we have got such a low rate of personal savings.
Let's take a look at what our savings rates has looked like over the years. Let's go back to 1980 and you'll see that in about 1982, our savings rate sort of peaked at about 12.8 percent or 12.9 percent. That's the highest we've had.
And you can see that we've just seen a lower and lower savings rate and this is directly related to our access to credit. So back in 1982, there may have been measures by which that recession was worse than this recession, that's debatable.
But the fact is, people were banking almost 13 percent of what they earned and they had a cushion. So if they lost their jobs, they could consider some of those things that Ryan was talking about; about starting a business.
We hit rock bottom in 2005, 2006. We were almost negative in terms of how much we were saving and we picked it up.
But take a look. The part in purple is what Alex Partners (ph) has showed us Their survey of Americans says that the target is to save 14 percent of their income by 2010; 14 percent. We're going from under three percent to possibly 14 percent. The implications for this are huge.
On one level, Donna, fantastic. People are going to save the money so if there are extended periods that they're out of work, they've got money to get them through that and maybe start a business.
Who's going to buy anything while we're all busy saving 14 percent?
ROSATO: Well, first I think we all know that when people say we're going to do something, they don't necessarily do that. If you see a turnaround in the economy, you may not see the savings rate get to the level.
VELSHI: You think these are people who want to say the right thing to the people who were interviewing.
ROSATO: Or they're just feeling like they want to do the right thing in the future and it's not a bad thing for you to save for yourself. I think we all know we're going to have to save more money.
And we've talked about this concept before. So how do you get people to spend money? And I think it's about giving them incentive to spend money in a way that's going to save the money in the long run in a smart way.
SNOW: When you think about it, if you had a heart attack, would you change your habits? Most people would say I would want to change my habits so I don't have that. But probably a lot of lofty goals out there that probably won't get to that.
(CROSS TALK)
GERGEN: Well, it's good to see people say, "I want to save 14 percent." But there's an old saying. Everybody wants to go to heaven, but nobody wants to do what it takes to get there. There's a truth to that here; 14 percent savings, anything close to that is going to delay a recovery because we're just such a consumer- based economy. Over the long haul, though, a much higher savings rate will be extremely healthy for this country.
VELSHI: Well, it will protect us if we have these job downturns. It will protect us in the economy.
GERGEN: It will protect us in the economy. It will also protect us if the Chinese won't buy our treasury bonds anymore. We can buy them ourselves.
VELSHI: Yes, that's a good point.
Monique, what do you think about discussion about people saving more money?
MORRISSEY: Well, I do think people's habits are going to change. I don't think people were entirely irrational or it wasn't just as if they were addicted to credit cards. There's a little bit of that. But I think also, their wages weren't going up. But their house -- their home values were. So they thought they were saving.
VELSHI: Well, we've all been chasing the little bit. Hopefully we'll learn something from and we'll figure out a way out of this thing.
It's a great conversation that we've had today. Thanks to all of you on our money panel. And thanks to you for joining us.
A mixed picture on the chances of economic recovery, but doesn't seem to be a horror show. By MONEY SUMMIT standards, that's a big improvement. My thanks to our panel.
Anderson, back to you.
COOPER: Ali thanks.
And thanks to all of you for making the CNN MONEY SUMMIT one of the most-watched programs on the network. You can always find more at cnnmoney.com or on our blog at ac360.com.
For all of us at 360, we'll see you next time.
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