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Your Money

The Road To Recovery; Mortgage Deal Reached; The Big Fix: Competition Is Key To American Innovation; Banking In Canada; Love And Money

Aired February 11, 2012 - 13:00   ET


ALI VELSHI, HOST: Well, if Clint Eastwood says it's time for a comeback in America, who are we to argue?

Welcome to YOUR MONEY. I'm Ali Velshi.

The reasons for optimism are clear. Led by private sector hiring, we've added more than 200,000 jobs a month. In each of the last two months, more than two million jobs in the year 2011. The unemployment rate has been steadily declining. Stocks are soaring so far this year. The Dow hitting its highest level in four years. So, how do we keep the recovery going? President Obama pleaded with Congress not to get in the way.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Now is not the time for self-inflicted wounds to our economy. Now is the time for action. So I want to send a clear message to Congress, do not slow down the recovery that we're on. Don't muck it up. Keep it moving in the right direction.


VELSHI: Stephen Moore is an editorial writer with "The Wall Street Journal."

Stephen, the president's message to Congress, don't muck it up. Your message is to the voters and you're saying the worst thing they could do for the economy is four more years of President Obama. Why do you see President Obama as a particular threat to this recovery?

STEPHEN MOORE, EDITORIAL WRITER, "THE WALL STREET JOURNAL": Well, Ali, first of all, I agree with you, the economy is picking up. I mean we're just getting week after week signs of a stronger economy. Manufacturing has picked up. We got some good unemployment insurance claims this week, which suggests we might get another bump down in the unemployment rate. So, I agree with you. We're seeing some really nice signs of recovery right now.

What I question, whether it's durable, whether it's sustainable. And I keep looking at what could happen on January 1, 2013, with the big tax increase that is going to go up. And I do think as we get closer to the end of the year and investors and businesses start to look at that tax time bomb, all bets are off on how well the economy will do. Look, and it's a -- the economy is definitely picking up. But, Ali, we're still five million jobs short of where we were in 2007 and this has still been by far the weakest recovery.

VELSHI: Right. But we may well be, by Election Day or shortly before that, where we were when Barack Obama took office. So it does weaken the argument that he's been bad for job creation. We have to think more broadly about that, which you're doing. No one wants to get in the way of this recovery. But, Fed Chairman Ben Bernanke, this week, reminded us all of the tough decisions that lie ahead. Listen to what he said.


BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: I've often said that I'm in favor of the law of arithmetic. If you want a low tax economy, which has benefits from an efficiency perspective, you've got to make the tough decisions on the spending side. And vice versa, if you want to spend more, you've got to figure out how to raise taxes and raise the revenues. So, I mainly try to urge Congress to make sure they're looking at both sides so that there's a balance between the two.


VELSHI: Chrystia Freeland is the editor of Thomson Reuters Digital.

Chrystia, welcome back.

You know, this is like that point at which you're working out, you're trying to lose weight and nothing's happening. And then a few weeks in, all of a sudden it starts to kick in and you're saying, how do we not mess this up. What is the way in which we don't mess this up?

CHRYSTIA FREELAND, EDITOR, THOMSON REUTERS DIGITAL: Well, actually, and Stephen is going to be shocked, but I agree with him. I think that you don't want to increase taxes too quickly.


FREELAND: I think in the medium term, you are going to have to increase taxes, but I don't think you want to do it until the recovery is really in place. And the other thing that I don't think you want to do is cut government spending. You know, what's been very interesting about the jobs picture is, it's been this fine balance of private sector jobs growing. But the reason the numbers aren't looking more robust is public sector jobs have been falling.

So I think what you really don't want to do is repeat the mistake that was made in the 1930s, where, as the economy was coming out of the Great Depression, people celebrated too early and decided, OK, now is the moment to balance the budget. That is not the main issue for 2012. This should be the year of focusing on growth and jobs.

VELSHI: Richard Quest is the host of CNN International's "Quest Means Business." Because he speaks with a British accent, I like to hold him responsible for Europe economy. At the end of the week, Richard, we saw an immediate threat to any optimism that had built up. And, as usual, it centered around Greece's inability to make tough cuts and satisfy the conditions that country needs to satisfy to receive a bailout that it desperately needs. And everyone in the U.S., in fact around the world, Richard, is desperately worried that it's going to mess up this recovery that we've got here. Any reason we shouldn't be worried?

RICHARD QUEST, CNN's "QUEST MEANS BUSINESS": Absolutely none. The situation in Greece is serious. At the end of last week, the euro zone told Greece to go back and redo its numbers and stick to its pledges. Greece now feels it's been humiliated. So the situation is worrying.

The only difference I would say perhaps is that maybe Greece isn't quite as relevant as it was because people have got used to the idea that either it may default or it may leave the euro zone. And familiarity eventually will just breed contentment of the situation.

To your point, Ali, that you've just been discussing about the U.S. recovery.


QUEST: I read a fascinating report this week from HSBC which basically suggests that the recovery we're seeing in the first part of this year is similar to that which we saw last year and by midyear it could falter and fade and disappear.

VELSHI: All right, but we've got some real things that are happening. Stephen, go ahead.

MOORE: OK. I agree with that point. You know, I do think the economy is picking up, but let's not forget, Ali, in 2010 and 2011, we saw pickups with the economy and then it drift back down to very slow growth. So I don't think we're -- I think it's too early to uncork the champagne and for the president to take a victory lap here.

VELSHI: Right. And I think that's the key point, though.

MOORE: Right.

VELSHI: We're not looking to uncork champagne, but it is -- I like my weight loss analogy the best because clearly I'm obsessed with that. The idea that I'm starting to feel something happen from all my hard work, how do I make sure I don't fall of the wagon.

Richard, the European situation is part of that falling off the wagon because it could derail things.

QUEST: It's not just a European situation.

VELSHI: Right.

QUEST: You've also got a rising oil price and strains and tensions in the Middle East.

VELSHI: Yes. Sure.

QUEST: You've also got a preoccupation that will take place this year in the United States with the deficit. You've got a crisis of consumer confidence that will come on board when people start to look and see and the election campaign really gets into full throttle later in this year. The unemployment situation is improving, but it is nowhere near perfect. So it's way too soon, Ali --

VELSHI: Right.

QUEST: For you to be shucking off the clothes, putting on the gym shorts and running round.

VELSHI: I'll keep the jacket on so you don't see the tank top I've got underneath showing you my six-pack.

Chrystia --

FREELAND: Please, Ali! We need to see it now.

VELSHI: Well, we need to see the economy's six-pack. Where is it most likely to grow? What can happen now, notwithstanding what we've all been discussing, the things that can mess up this slight momentum that we've got. What's the best way to underpin it, to keep it going?

FREELAND: So I guess I'm going to be the optimist today.


FREELAND: And the two optimistic things I would say are, once a recovery does actually set in, once you get on that path, the good news is, you have a lot of pent-up demand.

VELSHI: Right.

FREELAND: And the places where I think you could see pent-up demand, once we all really believe in the economy -- in the recovery and it really starts to be real, is actually, believe it or not, housing. There is a lot of pent-up demand for housing in the United States. So that is one source of optimism that I have medium term. Another one actually is cars. You know, people put --

VELSHI: And we've started to see that happen.

FREELAND: People put off the big buying decisions during the recession. And as the jobs numbers improve, as people -- as confidence improves, you will at some point -- I'm not saying it's going to be now -- but we will have a moment when there's a real takeoff and suddenly we're going to be optimistic.

VELSHI: And we started to see that in December a little bit.

MOORE: Yes, but you're all forgetting --

VELSHI: Go ahead.

MOORE: You're all forgetting that four-letter word that I always bring up on this show, Ali.


MOORE: I know you pull out the last hair you've got on your head.


MOORE: And that is debt.


MOORE: You know. And I think when we talk about $5 trillion of debt over the last four years, my worry is, Chrystia, that what we've done is built this economy on sand and that the debt is so enormous that very much like what we saw in 2007 where everybody said, oh, everything's going so wonder, everybody's buying homes, but it was an economy not built on a firm foundation. That is my worry.

Now, Chrystia, I'd ask this, when should we cut -- I've been in Washington 25 years. Everybody says not -- don't cut spending now. When? When are we ever going to get the debt down?

VELSHI: Well, hold that -- hold that thought. Hold that thought.

FREELAND: I want to answer Richard.

VELSHI: Because I just want to know -- I just want to -- I want Stephen to know that I knew the word he was going to say. So after saying it week after week after week, see, it does have an effect.

All of you stay there. Chrystia, Stephen, Richard, stay where you are.

I've got a personal question for all of our viewers. Do you earn enough money now? And do you expect to earn enough in the future? If you like sharing whether you do or you don't and what you expect, tweet me your answer @alivelshi or you can simply stick around and find out which group of Americans shocked me with their response next on YOUR MONEY.


VELSHI: Let's talk about what young people think about their situation in this economy. It may surprise you to find that 88 percent of 18 to 34-year-olds say that they either earn enough money right now to live the kind of life they want to lead or they are confident they will earn enough money in the future. This is according to the Pew Research Center. Less than one in 10 respondents claimed that they either don't or won't earn enough. Wow. All we think is that everybody hates their situation. Believe it or not, some of these young people don't.

So, Chrystia Freeland, as our self-appointed optimist on today's show, tell me -- because you have said you're concerned the world is headed for a few haves and a whole lot of have-nots. Some of those "Occupy" people will agree with you, it's 99 percent of have-nots and 1 percent of haves. Whether you believe that or not. Is this optimism on the part of these 18 to 34-year-olds that Pew talked to justified? FREELAND: Well, I'm delighted that they're optimistic, but I worry that the world is a slightly harder place than the young people think. And two thoughts. One is, once you start having a family, that's when things become really difficult. So I think a lot of what we're seeing is people are having families later in life. Charles Murray (ph) has been writing about this, you know, really quite eloquently. And that's when it really starts to bite. You know, it's not that bad to be making 15, 20 bucks an hour, crashing on the couch of your friend, maybe even having a good time. But once you start having kids, that is more difficult to do.

The other thing, which I think is going to be a big social issue and as anyone who employs these millennials knows, they have been raised in this bubble of everyone is above average. They've really grown up at a time when every kid is constantly told, you're brilliant, you're a genius, find your delight, the world will be great. And that's a lovely lesson to be taught in kindergarten. I think coming into this job market right now, it's a lot harder to make that work.

VELSHI: Right. It's American exceptionalism ripped (ph) small.

FREELAND: Exactly.

VELSHI: It's this whole idea that we don't actually have to reinvent ourselves, Richard, because we're America and it's great and what we are learning, and Europe is learning the same lesson, just being who you are, no matter how good it was, may not be enough to compete with India and China and growing economies. Give me your thoughts.

QUEST: Look, the millennials are a breed unto themselves. We've seen nothing like them before. Their optimism is unbridled, which is why, funny enough, I'm just starting a new series on the millennials.

They are loveable and hateable at the same time. They have an ambition to put us all out of our jobs because they believe that they can do it better than we can. And they look at those of us over 40 with a contempt that says, you guys screwed it up. So are they optimistic? Yes. But they will also learn it's not that easy in the world.

VELSHI: And, Stephen, we do have this problem where we've got -- you mentioned it -- still lost a lot of jobs. We continue to. Whether it's government custodianship or recessions, the fact is, our world is moving towards one which is -- it's globalizing some jobs. High-paying jobs are leaving the United States. Have been for many years. It's automating. We need fewer people to do things. And we have many, many unemployed right now. What is the -- what is our best solution to making a world where those kids' optimism is justified?

MOORE: Right. Well, first of all, let me just assure Chrystia that I never tell my kids they're brilliant. Far from it. I don't think they're above average.

But, look, I'm actually optimistic long term, believe it or not. I do think that there is American exceptionalism and I do believe where we lead the world, Ali, is in the area of innovation. You know, we are innovators. We are the Steve Jobs and the Michael Dells and the Bill Gates of the world. And we need to create more innovators and entrepreneurs. Because in my opinion, that's where we beat China, and where we beat India, where we beat Japan, is we have to be the world's creative class, both in terms of manufactured goods and services and financial products.

And, look, that's been the whole history of America. So I'm optimistic long term, but I just think we've put ourselves in a little bit of a rut right now. And I couldn't be happier that these young people are optimistic because that's what America is all about, thinking the future is going to be better than it has been in the past.

VELSHI: We can all agree on that one. Stephen, good to see you. Chrystia, always a pleasure. And, Richard, I want to know more about this work that you're doing on millennials. We look forward to speaking to you. And I'm glad, by the way, Richard, you were able to bring your own tie to today's show. Richard Quest in London.

All right, as Chrystia pointed out, the housing crisis continues to hold back the economic recovery and now the banks are paying up. But is it enough and who gets the help? What is the solution to fixing the housing market long term? Stay with us and I'll tell you.


VELSHI: It is the biggest payout to date over America's housing crisis. Five of the nation's largest banks will fork over $26 billion to help underwater homeowners and those who lost their homes due to improper foreclosures as part of a settlement announced by federal and state officials. Christine Romans is the host of CNN's "Your Bottom Line."

Christine, you've sifted through this. You've looked at it carefully. You've talked to people about it. What does this mean for consumers and who gets help?


First, people who are very underwater on their loan and are late on their mortgage. So they are in arrears. They are definitely in default. Those people will be qualified for up to $20,000 in principal write-downs. Again, these are non-Fannie and Freddie loans that are owned by the servicer. If you're underwater and you're late, you're going to get principal write-downs.

If you are underwater and you're current on your mortgage, you could qualify for refinancing at these record low mortgage rates. That's pretty important here because a lot of people for the non Fannie and Freddie loans have not been able to do this. They were too underwater.

There's a third group of people, Ali, who will be helped. These are people who were improperly foreclosed on sometime between September 2008 and December 2011. Those people will get a check, $1,500 to $2,000.

Now the big question that everyone is asking me, how do I know if this is me? Remember, these are non-Fannie and Freddie loans, Ali. And what's really important here is you need to go to the website that's been set up by the government for this.

VELSHI: Right.

ROMANS: Get the phone number of your servicer and start working right now. They want to get this money out within three years.

VELSHI: Right. And I've had tweets and questions about what happens to Fannie and Freddie mortgages? We've already had a couple of programs --

ROMANS: They've been disappointing.

VELSHI: Right. And this one is specifically tied to some of these improper practices where people have been foreclosed.

Stay where you are, Christine. I want to get back to this in just a moment.

First, I want to bring in Shaun Donovan. He is the secretary of Housing and Urban Development.

Mr. Secretary, good to see you again. Thank you for being on the show.

The show, which, by the way, as you know, is about sort of solutions. We know what the problems are. And I don't want to diminish this settlement at all, but it is, as we know, a small slice of the intractable and huge housing problem we continue to have in this country. How will this push the needle closer to getting us out of the housing crisis?

SHAUN DONOVAN, HUD SECRETARY: Ali, it's great to be back with you again.

Look, you raise an important point and I think it's very important to see this in context. Look, this is the largest, as you said -- just said, the largest payout by these servicers, the largest single act of real accountability for them of this housing crisis. It's the biggest federal, state settlement in the history of the country. But recognize that the servicing practices that we investigated, the recklessness of the banks, was really egregious was only a part of the problem.

The crisis was created by the origination and the securitization of these mortgages. While the servicing made it worse, it didn't cause the crisis. And so you have to see this in the context of the broader problems. And so it will help to solve it, but it's not the only thing.

VELSHI: Now you know --

DONOVAN: That's why over the last couple of weeks, Ali, as you know, the president has announced a range of other steps that we're taking. He wants to get to universal refinancing. He talked about it in the State of the Union. We've also announced other steps to get (INAUDIBLE) for families as well. VELSHI: Let me ask you this. We've covered those well, Mr. Secretary. Here's the issue. As Christine said, as you know, as we know, they all do make sense, but they have success rates, hit rates that are much lower than the government usually expects they're going to have. And part of that is the banks' lack of participation, lack of enthusiasm for these programs. How do we -- how do we really get them to do the right thing? I mean there are some people here who are mad that this isn't stronger than it -- then they would have liked it to be and maybe it was impractical to make it stronger. But the fact is, there are some people who think the banks were cheats and they're getting off with -- five banks are paying $26 billion, which feels a little like a drop in the bucket. How do we get them to participate and get more people involved?

DONOVAN: Well, first of all, Ali, if we'd taken every one of these cases we could have brought to court and won every one of them, we think we maybe could have got $30 billion, $35 billion. So this really is justice in terms of that.

But on the other side, you know, what we need to remember, this is done as an enforcement action and there is real teeth in this agreement that we haven't had where there are voluntary programs or we're using incentives. So, first of all, this is not that the banks have to just make offers or mail letters. If they don't actually deliver the principal reduction and the family isn't successfully able to stay in their home for at least 90 days, they get no credit.

Second, if they haven't completed their responsibilities within the three years, not only do they have to convert all of this into cash, they have a 25 percent or a 40 percent penalty they have to pay.


DONOVAN: Third, there's a court-appointed monitor who's going to be able to fine them for any violations they find, and be able to go back into court and hold them accountable. So there's real teeth here that will make sure that this actually happens.

VELSHI: All right, and that -- and we've evolved into this because we were really hoping, I think all of us on all sides were hoping starting three years ago that the banks would have been a little bit more cooperative in trying to keep those houses off of the market. They didn't and now we're in this pickle that we're in.

What is the next step, from your perspective as the housing secretary, what's the next step that the government can be involved in to getting out of the housing crisis?

DONOVAN: Well, I would say two things, Ali. One is that we settled the servicing practices, but their egregious practices in origination and securitization that we're going to continue going after. We set up, and the president announced in the State of the Union, a joint federal/state investigation to go after exactly those practices. So we're going to keep going on this. We're not stopping here.

The second thing though is, we need to broaden it. And you talked about it, Fannie Mae and Freddie Mac. They are critical. They represent about two-thirds of the mortgages. They weren't part of this settlement. They have a separate enforcement process they follow.

We've just announced not only a set of steps to expand refinancing for Fannie Mae and Freddie Mac borrowers, those should help hundreds of thousands, if not millions more families, but we also have to get principal reduction happening. It's the one area where we haven't made real progress. This settlement is a first step. But we also announced just a few weeks ago for the first time tripling our incentives for principal reduction and making them available for Fannie Mae and Freddie Mac mortgages. That's an important step as well.

VELSHI: All right, well come back and visit with us again. Let's together keep track of how this is moving along. We've now started to see a break in the back of the jobs problem and now all attention gets put onto the housing problem because that continues to be the thing that holds this economy back.

Secretary Donovan, always a pleasure to talk to you. Thank you for being with us.

DONOVAN: Great to be with you, Ali.

VELSHI: Christine Romans is still with me. Will Cain is a CNN contributor, conservative columnist.

Christine, I think Secretary Donovan asked some of the question -- answered some of the questions that you were asking me before we started.

ROMANS: Yes. How are we -- I mean, look, Eric Holder, the attorney general, told the world this week that they found very disturbing behavior among the nation's biggest banks and servicers who were not acting in good faith with people. Well, you've heard the stories of people so frustrated they didn't even know who to call. Who's going to make sure that there's going to be someone on the end of the line.

Now, there are new standards, a national standard, for how to service a mortgage now. And that's part of this whole deal. From now on, every borrower will have one point of contact in the bank. Can you imagine?

VELSHI: I mean that was -- we have struggled with this for years. In stories that I've done, it's been the most frustrating thing. Can somebody just tell me what's happening with this person's mortgage?

ROMANS: Right. And sometimes you had two different parts at the same bank --


ROMANS: Who were saying different things.


ROMANS: You modified a loan you thought and then you still had somebody telling you that you were in default on the other side. VELSHI: Right.

ROMANS: This happened over and -- tens of thousands of times. So, from now on, they're going to have to be better at it.

Now, one of the cynical things that I think is are the -- so this must be good for the banks. Why would they be doing it. Until now, they haven't really tried to fix the problem.

VELSHI: Right.

ROMANS: Have we got to the bottom of the housing market and now it makes more sense to modify and write down principle than to foreclose?

VELSHI: And some say that it's good for the banks because they now get to move forward without fear that they'll get sued. But they'll still get sued for other things if they do wrong -- things wrong.

ROMANS: Yes, there's a lot to still be sued for.

VELSHI: Will, here's the thing. Secretary Donovan said it. When I spoke to Delaware Attorney General Beau Biden, who was one of the holdouts and then did sign the deal in the end, he said the same thing. Everyone I've talked to has said, let's put it in context. It's not, in and of itself, while it's the biggest deal of this type that we've ever seen, it's still a drop in the bucket.

WILL CAIN, CNN CONTRIBUTOR: You -- that was the undercurrent of your interview with the secretary just now. What is the broader context. And also, is it a solution? So let me try to put that into some larger contest. Now, I don't want to rain numbers down here, but they're important.

The total value --

VELSHI: You think Christine will be offended if we do this?

ROMANS: We love raining numbers. We live to rain numbers.

CAIN: The total value of the housing market is $17 trillion. That's backed by $11 trillion in mortgages. Trillions. Trillions I'm talking about here.

Now you've talked to me about this, Ali. There is $750 billion worth of underwater mortgages. This is $26 billion. It's not good, it's not bad, it's largely nothing.

VELSHI: Is there some benefit in having it out of the way so that we can now start to solve other problems?

ROMANS: Well economists say you don't need to fix all of the underwater equity to fix the housing market. For example, one of the things that --

VELSHI: Right, you don't -- if somebody's underwater by 20 percent or 40 percent, they need help with some of the amount that they are under water.

ROMANS: Right.

VELSHI: It's not the worst thing in the world to be a little under water in your house.

ROMANS: And one of the things that the housing people, the housing secretary and his people and Attorney General Eric Holder and others have said is if you can start fixing up one -- if you can prevent some foreclosures one neighborhood at a time, the whole neighborhood does a little better.

You know, so they can't -- I think they're trying to get as much as they can, but they can't do it all and that's going to be enough to hopefully put a bottom floor in.

CAIN: And the fact that I say it's largely nothing, it doesn't mean it's not on some strategic path. I do think it is on a strategic path attempting to solve the housing crisis.

There are essentially three big paths out of this. One, is the one that conservatives path is the default math, the massive market liquidation movement have people foreclosure, have defaults, let's find the true value of the homes.

I've said on your program, both of your programs that could suck us all into bread lines. I don't think conservatives really value that. The other is principal reductions, big writedowns. Take your housing value now from 200,000 to 120,000. The secretary just talked about that.

VELSH: We're all starting to think that one makes a lot of sense. There's some principal reduction that's been done.

CAIN: Meaningful.

VELSHI: It's very, very small proportion. Now it looks like we can shine a light on this and say we're going to be 100 years old each before some of this value comes back. Get it off the market.

CAIN: But that's still a really hard thing to implement.

VELSHI: Somebody has to pay for it.

CAIN: This is on the third path, Ali, which I would say -- muddle along and hope that housing values are up higher in three years and we grow out of this problem. It's a little optimistic I think.

ROMANS: And a lot of people keep asking for the best benefit of the settlement, I need to not pay more mortgage a couple of months, but I don't think that's a good idea because it's going to be how underwater and late you are at the day this settlement was done. It's too late. I would pay --

VELSHI: Don't chase a default or foreclosure. All right, Will, Christine, always great talking to you. You know so much about this, Christine, so it's helpful so it's great to get perspective on a complicated issue.

Well, when it comes to growing the economy, the answer may be to think smaller. I'll explain to you next.


VELSHI: If you still believe that bringing manufacturing jobs back to the U.S. is key to our economic recovery, you're probably watching this program on a black and white TV. Most bets today are on American innovation or something else.

The U.S. remains number one in terms of supporting research and development in science and technology, but only by a slim margin. That's according to a recent survey of global competiveness in science, engineering, research and development.

It was released by the National Science Foundation last month. Vivek Wadhwa is the director of research at Duke University's Pratt School of Engineering and Vice President of Academics in Innovation at Singularity University.

Peter Diamandis is one of the founders of Singularity University, which brings together entrepreneurs and technologists to solve global problems. He's founder and chairman of the X Prize Foundation.

Gentlemen, welcome to the show. Vivek, let's start with you. You had an excellent article in the most recent issue of "Foreign Policy" about the need for a different kind of model for research and development in America.

And you say small prize-oriented competitions are the key to economic growth rather than large government-funded labs. Explain what you meant.

VIVEK WADHWA, TECHNOLOGY ENTREPRENEUR: Well, look at the way we've been reacting to the economic downturn and the lack of innovation. We talk about big bailouts. We talk about big investment.

I mean, look at happened with Solyndra, half a billion dollars. We're talking about national big schemes. Look at where the innovation comes from. It comes from small businesses, from entrepreneurs, from innovators who want to change the world. What we need to do is empower those innovators to take the ideas that they have, take exponentially advancing technologies.

And let Peter explain what that means and put together new solutions that change the world. That's what the solution is. X factor is the one where we -- Peter ended up launching an entire private space flight industry with a simple competition to put a lunar lander on the moon.

What this do is they give people ideas on what technologies, what companies they can develop to change the world. They compete with each other and you end up getting a lot of innovation from it. This is the future of America. VELSHI: It's a great suggestion. Peter, you know I'm a big supporter of the X Prize, which is at its base a technology and innovation competition.

Tell me about this. We've discussed it before on this show, but tell us why -- Vivek is explaining why those competitions not just take the best and brightest in an area that you've put the competition out for, it actually gives birth possibly to new industries and new businesses and people's entrepreneurship.

PETER DIAMANDIS, CHAIRMAN AND CEO, X PRIZE FOUNDATION: Thanks, Ali. Vivek is right on the money here. You know, our friends at the Kauffman Foundation proved that statistically all new job growth over time comes from start-ups.

You know, start-ups are a small group of extraordinarily passionate individuals who are committed to making their dreams happen and most importantly they're willing to take risks. They're willing to try something which is a crazy idea.

And I'm fond of saying the day before something is truly a breakthrough, it's a crazy idea. In society today, especially in large corporations and governments, they're not willing to take huge risks because they're worried about their stock price plummeting or congressional investigation, and consequently most progress is incremental.

But we really need to be taking the risks that are going to drive true breakthroughs. I mean, that's what created Silicon Valley and drove it forward and our economy is really driven more than anyone really realizes by the innovations coming out of Silicon Valley.

VELSHI: So, Vivek and I know Peter works very, very hard and sometimes I work alongside him on this in trying to drum up the funds for these competitions to do it. Where should the money come from? Is this all -- should this all be privately funded? Should this be wealthy people who fund these competitions?

WADHWA: I would do half and half. You know, we threw half a billion dollars at the solar industry trying to revive it. Instead of half a billion to one company, what about five million to 100 countries.

I tell you. We would have had entire new industries emerge from that kind of investment, which would have obsolete the solar industry because the innovators as Peter said take the risks and think outside the box.

They're not afraid of breaking the old. Big companies can't innovate. In Silicon Valley, you see it. It's not the Googles and the Microsofts who innovate.

It's the tiny little startups that come out of nowhere that want to put Google out of business that comes up with the next big thing. So you have a Facebook coming out of nowhere and that changes the dynamics. VELSHI: All right, guys, thanks very much. We're always looking for solutions and you two are employed in the business of trying to create solutions and make -- help other people create them so we applaud the work that you do. Vivek Wahdwa --

WAHDWA: This is the American way, Ali. This is the way America was built. We need more of it.

VELSHI: Very good, very good way to end it. Vivek Wahdwa is the director of Research at Duke University's Center for Entrepreneurship and Research Commercialization. He's also the vice president of Academics and Innovation at Singularity University.

Peter Diamandis is one of the founders of Singularity University and the chairman and CEO of the X PRIZE Foundation. When is comes to improving our banking system, should we look north for answers? What U.S. banks can learn from Canada next.


VELSHI: Canada's banking system is considered one of the strongest in the world. What are they doing that the U.S. isn't, and what can the U.S. learn from Canada going forward?

I was able to sit down with the president and CEO of Toronto Dominion Bank and I started asking him how Canadian banks handle mortgages differently than U.S. banks.


ED CLARK, GROUP PRESIDENT AND CEO, TD BANK GROUP: It's completely different. We hold our mortgages on our balance sheet. That has two effects. It makes our bank safer frankly because we have a very good asset that stays on their balance sheet.

It's a very good asset because we keep it. We worry enormously about the quality of those mortgages, so you don't do stupid lending and say I just can sell it to somebody else. What do I care --

VELSHI: Which means it's probably has historically is it a little tougher to get a mortgage in Canada?

CLARK: Yes, I think -- what's interesting is historically Canada's homeownership has been higher than the United States. So it hasn't impacted -- I think people mistake toughness means that you can't run a country.

No, you can run a country very well. But when we hit the crisis, the other big difference was that we could freely modify those mortgages and help people through the crisis.

VELSHI: When you say freely modify, it means you didn't have to get regulatory and government approval. You didn't have to cut deals in some room on a weekend.

CLARK: Exactly, or we have to go back to investors and say, I own this, you can't modify it. Look, 125,000 of our customers, let's change our condition and help them through here.

And that is great for the economy, it's great for those customers, but it's also good for the banks. At the end of the day we got 125,000 people we'll always be TD customers.

VELSHI: One of the things, though, one of the reasons for the financial innovation in the United States that gave birth to this idea of reselling mortgages into a secondary market was that more people could get access to mortgages.

Now, again, you're making the point that on a percentage basis, it hasn't made much of a difference. Can you give out enough mortgages if you hold your own mortgages?

CLARK: Absolutely. Absolutely and I just think you have much more flexibility. I guess, you know, I think this word innovation is a kind of odd term because I think there's true innovation that's built around how do we make the world better for our customers and clients.

VELSHI: Right.

CLARK: And then there's financial innovation, which is how can I actually make bets in more complicated structures that no one can understand and in the end turn out to have huge negative consequences.

VELSHI: We spoke to Sheila Bahr who told me she thinks there's a difference in how Canadians regard financial regulation. They seem to be more regulation friendly. In the United States with the exception of financial regulation, which people do actually support, there's an anti-regulatory feeling. What are your thoughts?

CLARK: Yes, there's no question there's a difference in the way we operate on both sides of the border. Not to misinterpret, Canadian regulators are tough. Canadian regulators have insisted on capital standards historically that were higher than the rest of the world.

On the other hand, they're principle-based regulators and their attitude to me is to say, Ed, you're responsible for TD Bank. I don't care what the law says. If you're doing things that are putting it at risk, we're going to hold you accountable.

The U.S. has come out of a system that's much more rule based, detailed rules. And I think embedded in that is this view that there should be a conflict between the regulator and the banks and, therefore, you have to keep on having more and more rules.

If you have more rules, you have better regulation. That's not obvious that it turns out to be the case. One would hope that over time you could move to a world where, you know, as a bank CEO I sit there and say to the regulator all the time, you and I are on the same side of the table.

I don't want my bank to blow up either. If you find things that are imprudent, tell me about them and I'll clean them up because I have the same interests you do.


VELSHI: Have you pictured your retirement? Do you know what you'd like it to look like? That may be the key to getting you there. I'll explain next.


VELSHI: Christine's back and Christine, you and I speak money, the language of money a little differently. And that's OK because we're not married to each other, but many people who speak money differently are married to each other.

In fact, as we found from this book we've written. Lots of people who are coupled, paired or otherwise have to spend time with each other speak money differently.

So Christine invited me on your to her show, "YOUR BOTTOM LINE" and asked me three questions about a topic that we cover and disagree upon in our book. So it's my turn now.

Three questions to you about money. Do you know -- our good friend, Bruce, always says people would save better if they knew what retirement looks like. Do you know what your retirement looks like?

ROMANS: My retirement, well, I know what you think your retirement looks like. You want to be on a cruise but on land or something?

VELSHI: Right.

ROMANS: I don't want an umbrella drink. I want to make sure my kids have a college education that's paid for and I want to make I have enough money to make it to the end.

VELSHI: Right.

ROMANS: So I'm not looking for something lavish. I just want security and comfort.

VELSHI: You wrote something in our book about in the year 1900, the average age that you lived to was like 42 or something like that. Nobody had to worry about outliving retirement.

Year after year, we come up with these medical developments and breakthroughs and I'm not sure people think every year, wow, I'm going to be healthier and live longer. Am I saving enough for it?

ROMANS: We're not saving enough for it. I mean, chances are you're not saving enough for it, right? And that's just the bottom line. And you know, the expenses in health care -- you look at some of these statistics.

And you know you how I got nervous about the amount of money you need to cover your out of pocket medical expenses. It's something like a quarter of a million dollars by the most recent surveys.

You look at how much it costs being in a nursing home. Even after insurance, your insurance and your out-of-pocket cost are pretty high. I don't mean to be Debbie Downer about money, but I do think we can focus a little bit more on the long term than the near term.

VELSHI: So when you and I write a book together, you definitely take the leave. You're the organized one between the two of us. You also you worry more --

ROMANS: That's true.

VELSHI: I sort to have this view like retirement that it will work out, it will all be fine. In a marriage, in a relationship, who should take the lead on retirement planning?

ROMANS: The one who it bothers the most and it should be someone -- and it's OK if one person is completely in charge. I don't think it has to be 50/50. You could go crazy, but I do think the person who as Dougsman says in our book, you know, those certified financial planners and he says -- from (inaudible) Capital Management, he say, you know the person who it bothers the most is the person who should take the lead. And I agree with that.

VELSHI: Very good. All right, let's talk about whether savers and spenders, if they muddled their way through to retirement, can they live harmoniously in retirement?

ROMANS: I think they can, but that's all about honesty and that's all about understanding these strengths and weaknesses of your partner. And no matter what it is whether it's money or something else, the same goes true for everything.

VELSHI: For all those people we've talked about who don't talk about money in their relationships, I bet you they haven't sat down and have the conversation about what do you think retirement is going to look like because two people may have very different views.

ROMANS: People talk and argue about all kinds of things. Politics, religion, what's going on in the front page of a newspaper, but they won't talk about how they're going it make sure they're getting some kind of a paycheck when you're too old to work. I don't understand that.

VELSHI: It is weird. Christine, always good to see you. Thank you.

Well, times are changing for America's middle class and we need to spend our time and energy looking for solutions to make sure we don't fall behind and sometimes that means getting out of our own way. My XYZ is next on YOUR MONEY.


VELSHI: Time now for the XYZ of it. Because of our focus of economic solutions and opportunities on this show, we've often spoken about urbanization, a global trend whereby people move to cities, which are generally more efficient than suburban living.

Urbanization works for many reasons. People use less space to live. They burn less fuel to heat and cool their spaces and they use mass transportation. Now around the world, as people join the middle class, they're moving to cities for a better choice of jobs because cities offer services that rural areas can't.

The savings of gas and the time spent commuting add up. But this process is slower in the United States than it is elsewhere for a couple of reasons. Gas prices are relatively lower here than they are elsewhere. Land hasn't been at the same premium and Americans like their vehicles, their highways, and their big properties.

But it is changing and that has some Tea Party activists saying that encouraging public transportation or the preservation of open space is part of a U.N. led conspiracy to deny Americans their property rights and to herd them into cities. Referring to a 1992 resolution called Agenda 21, in which the U.N. encouraged member nations to steer developments to already dense urban areas in order to conserve land use.

The U.N. resolution which is nonbinding aimed to promote efficient use of resources with sustainable development. Now last month, the Republican Party adopted a resolution blasting the, quote, destructive and insidious nature of Agenda 21.

The idea is that the so-called Agenda 21 is a U.N. led effort to violate America's sovereignty through sustainable development projects. That's bizarre to say the least, but it's no joke. Tea Party activists have actually been able to torpedo projects in many American towns because of their protests.

It seems pretty misguided and it takes the idea of less government being better to a detrimental extreme. In and among several major ideas that will allow America to better compete on the global stage in years to come while building infrastructure that makes our city more liveable and efficient got to be near the top of the list.

No one is suggesting that people can't own whatever land they want or whatever car they want and burn as much gas driving as many miles as they want getting to and from work. But actually standing in the way of communities trying to manage and improve their public infrastructures that hold this nation back from progress.

That's my XYZ. Thanks for joining the conversation this week on YOUR MONEY. We're here every Saturday 1:00 p.m. Eastern and Sunday at 3:00.

Make sure to check out my book with Christine Romans, "How to Speak Money," the step by step guide to understanding the language of money with everything you need to know at the right now to get the book.

You can stay connected with us 24/7 on Twitter. My handle @alivelshi, the show's handle @cnnyourmoney.