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Your Money
Facebook Fiasco: Ethical Or Illegal?; Too Big To Regulate?; Attacking Romney's Record; Capitalism On Trial; Housing: Recovered Or Recovering; Ford Gets Its Logo Back
Aired May 27, 2012 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALI VELSHI, CNN ANCHOR: An historic IPO turned into a Wall Street debacle and a legal mess over just the course of a week. Welcome to YOUR MONEY. I'm Ali Velshi.
Problems dogged Facebook stock debut from the start. On the Nasdaq, initial delays in trading were quickly followed by investor complaints over orders they said weren't getting filled.
Nasdaq later admitted to a technical error that delayed order confirmations for hours. The ripple effect meant some brokerages were still confirming orders and the prices paid for the stock days later. So why are we still talking about this?
Because of new allegations that lead analysts at Morgan Stanley, the main underwriter for the Facebook IPO received privileged information about the company, information they didn't share with retail investors.
FINRA, the Financial Industry Regulatory Authority, the U.S. Senate Banking Committee and the Commonwealth of Massachusetts have all announced probes into the matter.
That was quickly followed by a lawsuit filed by some investors against Facebook and its CEO Mark Zuckerberg alleging that both withheld material information from investors during the IPO process.
Now, specifically they are talking about forecasts that revenue would be lower in 2012. Facebook tells CNN, by the way, that the lawsuit is without merit.
Ron Geffner is a former SEC investment attorney. Henry Blodgett is the CEO of Business Insider, a web site. Back in 2003, Henry settled a civil securities charge with the SEC who was banned from the securities industry.
He's a good friend of our show. Henry, I say this because it's relevant to our discussion. You probably know probably know more about this now than most people do.
UNIDENTIFIED MALE: Unfortunately.
VELSHI: If no laws were broken, no regulations were breached, and it's quite possible that's the case, this still has some kind of stink that makes investors think the system is stacked against them. HENRY BLODGET, CEO, BUSINESS INSIDER: That's right. This highlighted a set of rules that really are grossly unfair to individual investors. It was actually similar in my case when I got in trouble. It was analysts working very closely with bankers on IPOs after the dot- combust.
That's ludicrous. We've got to change the rules. I think this is a case where, again, we've got to change the rules because in this situation Facebook basically preannounced a lousy quarter.
The underwriter analysts not just Morgan Stanley, but all the firms found out about it and then that was whispered effectively to big institutional investors and individuals never heard anything about it. It had an impact on the amount that the institutions were going to pay for the stock.
VELSHI: Ron, what's your take on this?
RON GEFFNER, FORMER SEC ENFORCEMENT ATTORNEY: It's still not clear to me. I don't necessarily know the substance of the information I was being communicated and the timing of the communication, in light of also the changes that were made to the prospectus that was provided to all investors, institutional and retail investors alike.
That being said, the entire world stacked one way or another by close on the internet when we look at different prices and compare so it's a function of being an educated consumer no matter what it is you're buying --
VELSHI: Can you be -- can my viewer by enough of an educated consumer in a system like this or is that by definition am I as a retail investor at a disadvantage to the pros.
GEFFNER: So now if you're comparing retail and presuming retail means novice, of course, every industry, every novice is at a disadvantage against a professional. If you feel you're at a disadvantage, work with people that are professionals and go to the fight with the same- sized gun as your competitor.
VELSHI: So Henry, your take on this is that may be the take away for my viewers right now is that we shouldn't have been involved in this IPO.
BLODGET: I think that is the takeaway. I think this highlighted one of many, many ways individuals are disadvantaged. The good news is, you can buy index funds, you're exposed to U.S. equities, exposed to American capitalism, make money but you're not competing day to day.
VELSHI: They don't have the excitement. The biggest IPO, you know, the most hyped IPO --
VELSHI: Anybody who wants to play the markets, speculate, fine, as a form of entertainment, it's great. People go to Las Vegas they know they are going to use, but it's still fun. You can do the same thing in the stock market. My point is only that if you're actually being serious about investing for retirement, everything else, there are much, much smarter ways to do it than try to out trade professionals.
VELSHI: Is there -- can the laws, can the SEC and FINRA, these regulatory bodies ever have enough in place where my ability to invest is fair and protected, I'm on a level playing field.
GEFFNER: That's a good point. First, law is a very dynamic world.
VELSHI: Right.
GEFFNER: It is constantly changing --
VELSHI: We make laws because we find out something went wrong.
GEFFNER: Exactly, sometimes by way of examples laws go too far. I would also argue in some ways the industry is overregulated.
VELSHI: That is a very good point because Henry, you and I talked about this. One of the reasons why Morgan Stanley, the lead underwriter didn't just come out and say to everybody, here are some specifics with respect to what Facebook's revenues are going to look like is because there's a regulation that sort of prevents them from doing that.
BLODGET: Exactly. It's designed to protect individuals by not getting research in advance and then the company didn't live up to the forecast so people would feel swindled. So it's best of intentions, law of unintended consequences. Big investors had very, very, very important information that small investors didn't get. So again, we look at the laws.
GEFFNER: But separately, I want to highlight one of my concerns, and why I want to know the substance of what was communicated. If the analyst of Morgan Stanley is communicating information that they looked at public information and analyzed in such a way that some of their clients should get the benefit of their brain power.
That's one thing versus if the analyst had access to information not everybody had access to, which is what you're suggesting.
BLODGET: Very clear that it was the second. Facebook proactively reached out to 21 analysts according to "Wall Street Journal" this morning to say basically take your numbers down. The new numbers were all very much in unison with one another. So to me --
VELSHI: But you know that happens, right? It does happen. You're saying it shouldn't have happened.
BLODGET: Certainly in this case, it should have been made available to everybody.
VELSHI: But how, given the current laws.
BLODGET: It could have been published. Look, I think Facebook could have helped a lot here. Instead of adding vague language to the prospectus, what it did, it changed and people were unnerved by that.
Growing faster in the third quarter, but not to me, a securities analyst, that's different than second quarter coming in weaker than we thought, the year is weaker than we thought. If they had said that the fine then everybody gets the same information and we go from there.
GEFFNER: So you're suggesting that they received more granular information.
BLODGET: Much clearer information.
GEFFNER: And so the legal obligations that the issuer or Facebook is precluded from providing information inconsistent with what's contained in the prospectus prior to the IPO.
VELSHI: So do people who are suing have a case?
GEFFNER: They may or may not. We still really don't know all the details. There's a lot more variables that need to be considered. It depends on quite frankly who is bringing it.
Because realize this is not a tale of two cities, it's a tale of three cities. Cases against Morgan Stanley, Facebook and also Nasdaq. People who are bringing cases against Nasdaq I would say seem on its face to initially have the stronger cases.
VELSHI: All right, guys. Thanks for clearing this up. It's a complicated issue. Henry Blodgett, CEO of Business Insider and Ron Geffner, former SEC enforcement attorney and a partner at Sedas Goldberg.
All right, coming up next, it's not just Facebook's debacle that has us all scratching our heads about what exactly is going on Wall Street. We've also got JPMorgan's massive trading loss a few weeks ago.
Is all of this taken together enough to give President Obama another chance to reform Wall Street? When we come back I'll ask the woman who dared to challenge Wall Street, said we need to hold accountable the industry that has run wild. Elizabeth Warren joins us next.
(COMMERCIAL BREAK)
VELSHI: JPMorgan Chase, one of America's soundest financial institutions, a big-time Wall Street bank considered too big to fail. But it recently admitted to losing $2 billion on complicated trades involving credit default swaps.
Sources tell CNN Money the losses could be as high as $7 billion. Credit default swaps are like insurance, but they are not. They are more complicated and they are highly volatile. Let me explain to you.
Investors buy insurance on some underlying thing. Let's say a loan. They give money to the bank, sort of like a premium. If that loan doesn't get paid, the bank has to give money to those investors. But in this case they were betting on something that didn't even exist and that neither the bank nor the investors had any underlying interest in. This is the same mess that wreaked havoc in 2008 almost bankrupting insurance giant AIG.
If you recall, and you probably do, the U.S. government spent more than $180 billion to bail out AIG because it was, like JPMorgan Chase is today, too big to fail. While that crisis spurred some financial regulation, what happened then could entirely repeat itself today.
Now that JPMorgan Chase CEO Jamie Dimon who has really pushed back on regulation has egg on his face, could this be the time for President Obama to get it right with respect to regulation on Wall Street?
One of the best known advocates for financial reforms joins me now. Elizabeth Warren was one of the main architects of consumer financial protection, through the Consumer Financial Protection Bureau.
She was brought in by the Obama administration to get the consumer watchdog group off the ground. She's now a Democratic candidate for Senate in Massachusetts.
Elizabeth, good to see you. Thank you for being with us.
UNIDENTIFIED FEMALE: It's good to be here.
VELSHI: Elizabeth, four years after the financial crisis, are we or are we not better equipped to shield the economy from risky bets that are made by institutions like JPMorgan?
ELIZABETH WARREN (D), MASSACHUSETTS SENATE CANDIDATE: Well, we are better equipped. There are some changes that have been made like Consumer Financial Protection Bureau. That means we're feeding a little less risk into the system.
But the real question is, are we adequately equipped? I think what the JPMorgan Chase problem shows, there has been no change in attitude out there. The banks still want to load up on risk in order to juice their profits.
They are still not adequate oversight of that. So long as that exists we're at risk.
VELSHI: Here's the question, why should I care that JPMorgan Chase, a private company with lots of money is taking risky bets. Because my mind goes back to 2008 and AIG and I think -- I don't care if you do it for you and your shareholders, but at some point it starts to risk the entire economy. Am I overstating the case here?
WARREN: No, you're not. That's exactly the point. You know, if these banks load up on too much risk, as long as it all pays off, you know, then they take the profits home, but as soon as it reverses then the losses are on the rest of us.
Never forget what happened in 2008. It meant that people lost their jobs. It meant that small businesses couldn't get the money they needed in loans to keep their businesses afloat. It meant that people lost their pensions. It meant that this whole economy nearly went over the edge.
You know what makes it so important is that burn me once, shame on you. Burn me twice, shame on me. This is now the point where the American public says, wait a minute, we bailed you guys out. But the understanding was there was going to be a new day here.
There was going to be some change. But the financial institutions instead of saying, OK, we've got it. We made a terrible mistake, thank you for bailing us out. Instead they fought back against regulations.
They hired the biggest lobbying force ever assembled on the face of the earth. They fought those regulations and when Dodd/Frank passed, they just moved to Guerilla warfare.
They continued to lobby Congress. They continued to lobby the regulatory agencies to delay the implementation of the rules, to put loophole in implementation of the rules, to tangle the rules up, to undercut the regulators so they wouldn't have adequate funding to supervise. And that leaves us in the same old stew.
VELSHI: Elizabeth Warren, always a pleasure to talk to you. Thank you for joining us.
WARREN: Always good to talk to you.
VELSHI: Coming up next, JPMorgan has long and colorful history in Washington. This week was no exception as the Senate Banking Committee took up debate on its debacle. But would Wall Street reform really prevent another financial crisis? My next guest says no. Stephen Moore joins us when we return.
(COMMERCIAL BREAK)
VELSHI: Before the break we heard from Elizabeth Warren who's running for Senate in Massachusetts about why banks need to be regulated.
My next guest says regulation would not have prevented JPMorgan's hedging losses and they don't have anything to do with taxpayers anyway.
Stephen Moore is an editorial writer with the "Wall Street Journal." I consider him a friend. But today, Stephen, I think you're crazy. How can you say that risks taken by banks don't have anything to do with the taxpayer? Were you living in Malta in 2009?
STEPHEN MOORE, EDITORIAL WRITER, WALL STREET JOURNAL: Well, look, Ali, let's go back to the financial crisis in 2008 and 2009 when the banks collapsed.
VELSHI: Right.
MOORE: It's important for people to understand, the main reason that those banks collapsed, and we saw these massive hundreds of billions of dollars of losses was, what were the banks investing in?
They were investing in exactly what federal regulators told them to invest in, mortgages and mortgage-backed securities which turned out to be worthless. It wasn't fancy financial instruments, it wasn't derivatives, wasn't so much hedge funds.
VELSHI: The mortgages were the underlying problem. There's no question that if home prices hadn't gone down and people weren't under water, this wouldn't have happened. But we created this much, much bigger world by having bets on bets on bets of things that were synthetic and derived and whatever.
MOORE: That's true too.
VELSHI: I mean, ultimately, AIG, sure, if mortgages hadn't gone sour wouldn't have gone down, but regulators didn't know what they were betting on.
MOORE: This is my point, though. Often times we have this mentality, I think you have this mentality, Ali, sometimes, that these regulators have the super wisdom that they understand --
VELSHI: It's a dream, not a mentality to dream. I fantasize that regulators will do this.
MOORE: Look, they don't. Do you think the federal regulators would have seen some of the folly in what JPMorgan was investing in? I think not.
The other point I would make to what Elizabeth Warren was saying on the show, look, it was two years ago that Dodd/Frank was signed into law. Two years ago.
This was supposed to be the most sweeping financial regulation of the banks and other financial institutions that we passed in 50 years and it didn't go anything to prevent the crisis that's going on.
VELSHI: Because Republicans worked very hard to water this down. Elizabeth Warren is running for Senate today. She would have been the head of the Consumer Financial Protection Bureau, but for a bunch of Republican senators who wouldn't let that happen.
MOORE: Look, here is my concern with the rush to regulate. I think you would agree with this. The United States, if we're going to remain the economic superpower, we have to be the financial capital of the world.
VELSHI: Right.
MOORE: We have to be the place where deals get done, where we have the most efficient capital markets. Here is where I disagree with you, Ali.
I think this massive push to impose new regulations on our financial institutions is not going to make them safer. I think what you're going to see is a lot of this business moving to Tokyo, London, Beijing --
VELSHI: Regulation has got to be smart. Let me ask you this, do we agree, is this a nonpartisan issue even in America that it's dangerous to have too many too big to fail financial institutions?
MOORE: That is a very tough question. We've been struggling with that at the "Wall Street Journal" editorial page because we have created this sense in the market that these large insurance companies, these large banks, brokerage firms have become too big to fail.
Therefore, they have this kind of taxpayer safety net. I hate that. You know me. I hate the whole idea of bailouts. I'm not sure what the best solution to this is. Because the fact is we will bail out these institutions if they fail.
VELSHI: That's the danger, right? The danger isn't that JPMorgan goes and makes bets with its own money, why do I care about that? I care because if they do something bad to the economy, we're going to have people in Iowa that can't make home loans, major companies who can't raise money and have to fire people. That's where the connection is, right?
MOORE: That's right. There's something special about banks. I want to make this point. Look, the reason we care about banks as opposed to insurance companies and brokerage firms is that banks also have deposit insurance, right?
The taxpayer stands behind that. So you could make the case there should be special regulations on the way banks invest because they have the special protection of FDIC insurance.
I don't see that necessary for other types of financial institutions. Maybe what we need to do is separate out the banks from these other financial institutions.
VELSHI: Let's go to some place where we agree. I have this fantasy that regulators should be able to regulate what AIG did and what JPMorgan did. Here's my fantasy that the regulator is somebody in that chief investment office in London.
I don't know why this stuff always happens in London. Looking over the books with them as a partner, not as an outside eye, but somebody who says, what would happen if this didn't go your way in what would happen if this bet you made went the wrong way.
Would be able to say, that's dangerous to the global economy, can we do something else? In other words, I'm not asking for people to do forensic work that's smarter than the smartest people in finance. But is there not some way you can actually have regulation that's effective that way?
MOORE: The one area that I would agree with Elizabeth Warren is I think we do need more transparency in these trades. But here is an interesting point that I would challenge you on, Ali.
If you look at what JPMorgan was losing money on, those were hedge fund bets, hedging against risks. In other words, they were trying to reduce their risks with these hedge bets. They didn't turn out so well.
But I'll tell you this. Let me ask you this question, Ali, how many people in United States Congress do you think understand what a hedge fund is, what a derivative is, what a credit default swap is.
So you're asking these members of Congress who have no knowledge of these markets to be regulating them. It's another reason I'm skeptical that the brains in Washington are going to be able to avoid these kinds of financial catastrophes.
VELSHI: I share a lot of views on that. I still don't know if that's the reason not to do it. It's a good discussion. You're always up for it even though you're a little dose of crazy.
MOORE: I think I'm working on you. I think I'm making some progress.
VELSHI: Stephen, always a pleasure. You have a great Memorial Day weekend, at least what's left of it. Stephen Moore is an editorial writer and a great thinker with the "Wall Street Journal."
Another election about plumbers.
(BEGIN VIDEO CLIP)
JOE BIDEN, VICE PRESIDENT OF THE UNITED STATES OF AMERICA: Your job as president is to promote the common good. That doesn't mean the private equity guys are bad guys, they are not. But that no more qualifies you to be president than being a plumber.
(END VIDEO CLIP)
VELSHI: He didn't say plumber, did he? Is Governor Romney's time at Bain Capital, a private equity firm relevant to what type of president he would be?
(COMMERCIAL BREAK)
VELSHI: Call it capitalism on trial, again? Mitt Romney under attack again from President Obama and others, at least this time it's the Democrats attacking him who question the wealth that he gained as a successful businessman leading the private equity firm, Bain Capital.
You have seen the headlines. Before we can figure out what this all means, we need an answer to a very simple question, what exactly is private equity.
Christine Romans is the host of "YOUR BOTTOM LINE," she joins me to answer that question -- Christine.
CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: Ali, think of private equity like this, it's rich and big investors like pension funds, university endowments, wealthy people pooling their money together to make a profit. Often they zero in on failing companies. They buy them, take them apart, sometimes they own them for a while and grow them. Governor Romney points to his time at Bain Capital as the reason he is the man to run the nation.
(BEGIN VIDEO CLIP)
MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: In the business I had we invested in, over 100 different businesses, that net taking out jobs we lost and those we added, those businesses have now added over 100,000 jobs.
(END VIDEO CLIP)
ROMANS: Romney's claims are based on invested Bain made in Staples, Sports Authority, and Domino's and other household names as well -- they are success stories. Romney's counting jobs created even after Bain was out of the picture.
After it sold the company to someone else and they continued to grow. But it's impossible really to know how many exactly, how many jobs Bain and Romney created or lost in those private equity investments from 1984 to 1999. Bain does not record payroll number for its deals.
Private equity is private. Once the company is no longer listed, the books are closed. Of course, the president sees it quite differently as this Obama campaign ad shows.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Paying job that you can support and raise a family on is hugely important. That stopped with the sale of the plant to Bain Capital.
UNIDENTIFIED FEMALE: I thought I was going to retire from there. I had about two and a half years to go. I was suddenly 60 years old. I had no health care.
(END VIDEO CLIP)
ROMANS: Well, the bottom line, primary mission of private equity firms like Bain is to create profits, not jobs. In this economy, capitalism, the idea is that after you create profits jobs come later.
VELSHI: That's a good point. Christine, thank you so much for a great description of private equities.
Was it fair for Governor Romney to cite his time at Bain Capital as an example of his ability to create jobs? I'm not discussing the validity of private equity whether you like it or now.
We're now discussing whether his time at Bain Capital qualifies him or somehow makes him more competitive in his race for the presidency.
Someone who should know is Ed Conard. He's a former managing director at Bain Capital. He's the author of the book "Unintended Consequences, Why Everything You've Been Told About The Economy Is Wrong."
Ed, welcome to the show. You're not just a defender of the free market. You're a supporter of Mitt Romney, which is fair enough. Even though it was Republicans originally attacking Mitt Romney's record at Bain during the primary campaign, it's now switched. But let's remind everybody of what it sounded like back then.
(BEGIN VIDEO CLIP)
RICK PERRY (R), FORMER PRESIDENTIAL CANDIDATE: There's a real difference between a venture capitalist and vulture capitalist. Venture capitalists are good. They go in and invest capital and create jobs. Bain, on the other hand appears to me were vulture capitalists all too often.
(END VIDEO CLIP)
VELSHI: I was surprised when that happened. I was a little bit shocked. I'm less shocked that Democrats are taking aim at Mitt Romney. I was quite amazed it was Republicans back then.
Bottom line, bottom line, forget whether we like or don't like private equity. Does it prepare Mitt Romney to create jobs, which is the number one issue that Americans have?
EDWARD CONARD, FORMER MANAGING DIRECTOR, BAIN CAPITAL: I think so. I think absolutely it does. I think business executives are a critical part of economy and that really are powering the growth.
The U.S. economy has been much more successful than Europe and Japan. We created 40 million since the 1980s on a base of a hundred million. Europe and Japan have grown half as fast in employment growth relative to their base. I can't think of another job that would be more qualified than that.
VELSHI: Did it make you cringe? All the scrutiny came on Romney about how many jobs are created at Bain. It's a tough one how much jobs were created, weren't created, 100,000?
CONARD: I think 100,000 is probably a reasonable estimate. Mitt was there when it was venture capital so there was more growth oriented companies at the time.
But I think if you look there's a small minority of the businesses that weren't successful. Bain invested in about 350 businesses over the course of its time.
VELSHI: Right.
CONARD: I think the average growth rate was two, two and a half times of the S&P 500 for the companies that were successful. These ads cherry pick on the most extreme examples. But is everything successful, no.
VELSHI: Do you think people realize. Christine named all the companies that Bain was involved in, do you think a lot of people realize they may be working for a company that exists or thrives or growing because of private equity --
CONARD: I think most company -- most employees who work for Bain Capital company know that Bain is involved, yes.
VELSHI: They are less likely to think that venture capital and private equity is vulture capital.
CONARD: Well, it depends on the situation, I suppose. If they are working in a steel mill at a time when 50 percent of steel capacity is gone and Bain has to make tough decisions. We try to make the company as successful as they can make it --
VELSHI: You're not going to like Bain. You're not going to like private equity.
CONARD: Yes, you're not going to like business either. I really do think these ads try to pretend private equity is doing something different than what businesses are doing in general.
These are really attacks on business, trying to pit employees against employers. They do this all by pretending Bain does nothing more than cut costs and close companies, which is almost laughable.
VELSHI: Roland Martin is a CNN political analyst. Roland, President Obama has 19 straight months of job gains that he can run on. In fact, if you want to talk about private business, it's many more months, more than two years. Why is he talking about Bain?
ROLAND MARTIN, CNN POLITICAL ANALYST: Because he understands that in this climate when you talk about Wall Street, when you talk about executives in terms of hedge funds, private equity companies, how it resonates with the American people.
But here is something that I think that is important. You said, should we measure Governor Romney based upon Bain. Here is the real deal. We're not electing somebody to be the head of the private equity company.
We are looking to him to potentially be the president of the United States. So if you actually want to measure apples to apples, oranges to oranges, you measure how did he perform as governor of Massachusetts? That's the real key.
Because on one hand Republicans are critical of President Obama for the government investment in Solyndra, you could call that private equity if you want to and investing in a company. But the real deal is when you're the president you're not running it like a private equity company.
So I would say his role there plays a role, the experience. But also the president is dealing with commander in chief, is dealing with housing, a wide variety of issues beyond just what did you do running a company in terms of being able to fund startups.
VELSHI: It is a little weird to attack him for being the head of Bain. I mean, I don't understand how that gives him less qualifications --
MARTIN: Actually he's not. Actually he's not.
VELSHI: How does -- I'd also say --
MARTIN: You're making -- you're making a political argument. What you're -- remember, when we talk about, whenever a politician talks about jobs, they are really talking about voters. So what the Obama campaign is doing is saying you had a negative impact on real people.
So the reason you're hearing these stories is because they are trying to allow those stories to resonate among people who are unemployed, who have lost their jobs for a variety of reasons of that's why. That's the real reason why you see these attacks.
They are trying to tie him to job losses when he was ahead of Bain in terms of cutting companies to the people out there who are hurting and saying who is looking out for me.
CONARD: See, I think this is all about how business is bad for employees. Despite the fact that the U.S. economy put 40 million jobs to work, we brought 20 million immigrants in the country, provided them with jobs, educated their children, put tens of millions of people come work offshore. Nobody has done more for the middle class and the working poor than the American economy.
VELSHI: Such an unsuccessful argument, I don't know if it's Mitt Romney having trouble with it or a tough argument to make that business is your friend after the last four years we've seen.
MARTIN: Precisely.
CONARD: We're in a recession but I don't think you can blame it on business.
VELSHI: Find a reason to.
CONARD: Sure will try, that's for sure.
MARTIN: You're dealing with the economy right now also where voters are saying, wait a minute, the government bailed out large banks who didn't turn around and loan that money in terms of credit lines. They are sitting on cash reserves and we're still hurting.
I'm trying to make it clear, the political argument you're touching on the emotional core of voters. That's what this is all about.
VELSHI: All right, guys. Good conversation. Thanks so much for joining us. Ed Conard is a former management director at Bain Capital and the author of "Unintended Consequences." You know Roland, he's our CNN political analyst.
Coming up next, Mitt Romney has faced a barrage of attacks on his business record with President Obama, as you see, trying to portray him as a job cutting corporate raider. Now he is vowing, vowing to cut the unemployment rate. Forget the noise. I'll tell you what you really need to look at when it comes to which one of these guys you should trust to actually create jobs.
(COMMERCIAL BREAK)
(BEGIN VIDEO CLIP)
RONALD REAGAN, FORMER U.S. PRESIDENT: Might be words you would ask yourself, are you better off than you were four years ago?
(END VIDEO CLIP)
VELSHI: Ronald Reagan asked that question, it was 1980. That question is one that voters will be asking themselves on Election Day this year in November. We know this election is about the economy.
What are the most important economic issues to voters and who wins on the issue that voters claim really matter? Gallup asked just that question. I want to take you through the results.
The higher up on the board an issue is, the more the boaters care about it. The issue where President Obama holds the advantage are naturally further on the left. How far on the left they are is a sense of how much the president leads Mitt Romney by on those issues.
Issues where Mitt Romney leads are on the right of the screen. For example, President Obama's widest margin of victory over Romney is on the issue of who would improve living standards for the poorest of Americans, 69 percent of Americans think this is a very, very important issue and 62 percent of them think Obama would do a better job than Romney.
Right there is just one example. The problem with that, it finished eighth on the list of the top 10 economic issues. Let's talk about the ones that mattered most. All right, number one on the list, health care, 84 percent of Americans think this is a very or extremely important issue. By a good margin, President Obama beats Mitt Romney on this topic.
OK, let's take a look at one that Mitt Romney does very well on right over here. That is the federal budget and deficit, 82 percent of Americans, that's a good number. Remember that, that's key, 82 percent of Americans think this is an extremely or very important issue.
Look at the margin that Romney has over Obama on this, 54 percent think Romney would do a better job than Obama. But listen, the number one issue in this country, say it with me. You've heard me say it many, many times, unemployment.
Let's take a look at that. That's right here, unemployment is an extremely important issue to 82 percent of the population. By a small margin, by a small margin, Americans polled think that Barack Obama does a better job creating jobs than Mitt Romney is going to. It's not much of an advantage for the president, but it is crucial. As a result of that if that trend continues, if we continue to create jobs in this country, if by Election Day as projected all of the jobs lost under President Obama will have been recovered that is probably going to send him back to the White House.
Will Cain, tell me why I'm wrong?
WILL CAIN, CNN CONTRIBUTOR: You're wrong for many reasons. Not only are you wrong, but I think the poll takers are wrong. I think they don't believe the results themselves. I'll start by asking you one simple question. Is unemployment the appropriate score board, is it the political score board for how the economy is doing?
VELSHI: No, I don't think it is. I think job creation is. If you think you're going to get a better job, you have a chance of getting a better wage, you spend money. When you spend money, that creates demand, demand means more jobs are out there and all of your problems seemed a lot smaller.
CAIN: We agree that it's not the score board for how the economy is doing and I will tell you this --
VELSHI: It is barometer of how you feel about the economy.
CAIN: It's a barometer of something, 92 percent of Americans are working right now. You have to wonder if 92 percent of Americans are working right now, why do they care so much about unemployment?
VELSHI: That's not true. Of the working population, 8 percent are unemployed. A much smaller number of Americans are working.
CAIN: That's fair enough, workforce participation, who is looking for jobs.
VELSHI: Correct.
CAIN: What I'm telling you is I think Americans have substituted the unemployment number for their direction of how the economy is going. We have another indicator on that chart that you just showed that shows economic growth.
VELSHI: Right.
CAIN: Mitt Romney has a big lead on economic growth plus 10 points. Voters very much favor Mitt Romney for making the economy grow.
VELSHI: All right, so here is the thing. Mitt Romney has got to find something to connect with voters, right? So he's got some strength.
Based on that poll, like I said, economic growth. He outranks the president there. Mitt Romney is getting 52 percent to President Obama's 42 percent.
How do you transform that into an emotional campaign? Because that's what he has to do. President Obama gets out there and does the Ronald Reagan, I'm going to make your life better. What is Romney got --
CAIN: I reject the premise. I don't think he has to go out there and make this big emotional appeal to connect to voters. I think what happens is in November this is a referendum on Barack Obama and how people feel about how he's been a steward of the economy.
That's what this has to be about. I think Mitt Romney think as well. He's sitting back. He's letting the Bain conversation take place. He's letting the capitalism on trial conversation take place.
I think that's just the right move. Let Barack Obama make those mistakes, which I think they are mistakes.
VELSHI: Here is the one thing I think would trump both of our arguments, unemployment and debt and deficit come second to health care.
CAIN: That's the wild care under this thing.
VELSHI: Obama wins on this one.
CAIN: He does. And everything under health care is economic in nature, unemployment, debt and deficit, economic growth, Mitt Romney is the winner in most of those, how health care plays will be huge. But right now Barack Obama's solution to that problem we point out isn't very popular with Americans.
VELSHI: Just to make it interesting for you. All right, Will, always a pleasure to see you.
Coming up next, has the housing market finally overcome the burden of the bubble.
Later, one of the best days in the Ford family history as they get back a piece of their heritage.
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VELSHI: The signs of a remarkable resurgence, not just a regular one, a remarkable resurgence in housing are here. Take a look at where we are now compared to last year.
Home prices are up, existing homes, a used home, most of the market, up 10 percent from a year ago, home sales up 10 percent from a year ago. Median home prices, half of homes sold for more, half for less, $177,400, up 10 percent from a year ago.
That's starting to sound familiar to you? And listed inventory, the number of homes available for sale are down 20.6 percent. Fewer homes to buy.
Interest rates, by the way, once again, setting record lows. If you have the down payment and good credit, a 30-year fixed mortgage is going to run you about 3.78 percent for some of you depending on where you're buying. Joining me now is Alan Feldman. He is the CEO of Resource Real Estate, a national real estate firm. He says I am full of it. Mark Zandi, chief economist with Moody's Analytic says the crash is over, ready to buy. Alan, what is wrong with you, man?
ALAN FELDMAN, CEO, RESOURCE REAL ESTATE: Well, I think you point out a lot of statistics, Ali. But I listened to you a few minutes ago and it's really about jobs.
In order to buy a home today, you're right, you've got to have cash and a lot of it, $25,000 to $50,000 to buy the median home price today. Credit, which most Americans don't have, and you need to have a job and job security.
The fact is, if you have all those, you can buy a home, but most Americans simply don't have that. And I think the statistics, they were up and down over the last few months.
And I think you're being a tad optimistic frankly. We're still 20 percent or so down from home prices, and we've got a long way to go.
VELSHI: Mark, he's keeping me honest on this. Let's just talk about the house situation for a while. There are 3.6 million loans in or near foreclosure in the United States. That obviously continues to be a problem.
But the hidden fact in there is rather than becoming foreclosures, many of them are becoming short sales. In other words, the bank settles with you and calls it quits based on what you can pay them.
Something the banks should have been doing years ago. It took them too long to figure this out. Why would that make a difference?
MARK ZANDI, CHIEF ECONOMIST, MOODY'S ANALYSTICS: I agree that this housing market isn't going to take off. The recent data probably overstates the case. But I think it's clear that the housing crash is done.
Home sales have improved, construction, house prices are all improving and will more or less continue to improve. So we're not going to take off but we'll do pretty well.
One of the reasons we're not going to take of is the reason you just gave, 3.6 million loans in or near foreclosure. So that's a lot of loans to work through.
That's going to put continued pressure on the housing market particularly later this year into early next when a lot of those loans are going to come to a distress sale or foreclosure or short sale.
So we have to make more progress on that before we take off. But adding it all up, the housing market is moving in the right direction.
VELSHI: Right, so I guess, we have to distinguish. Alan, you've chastened me, so I'm going to restate the case. That is that perhaps the worst is behind us. Home ownership, Alan, in the United States is at 65.4 percent. That's the lowest rate in 15 years.
If fell to that in the first quarter of this year, the first three months, but here's something interesting. Let's go back to the median price, $177,000 and change, 78 percent of the homes sold in the first quarter of this year were affordable to those who earned the national median income in this country.
That's according to a report released last week by the National Association of Homebuilders and Wells Fargo. I would think that's also a piece of good news. One of the pieces of news about home prices falling for some years is now there are a bunch of people that were priced out of the market for years who now can own a home.
FELDMAN: Yes, it's true. It is good news, but it's still not easy to get a loan. One of our lenders, I won't mention the bank. I was talking to a senior loan officer who has been at the bank for 20 years. He's having trouble getting a mortgage from his own bank. It's just not that easy to get one. We are at about 700,000 starts right now, but that's half of what it's been historically.
It's just not enough. Mark is the expert on this, but we probably need a million or so new home units a year of the 700,000 starts, 200,000 of there were for apartment units.
VELSHI: Right.
FELDMAN: Something that we spent a lot of time thinking about. Most of the people today, when they can make that rent by decision, frankly as you've pointed out, we've gone from 69 percent to 65.5 percent, but it could keep going.
Every time it moves a percent, that's a million less homeowners. When people see a short sale or foreclosure across the street from them, it spooks them. People think three times before stepping up to the plate to buy a home today.
VELSHI: That rent equation may start to drive the home opening equation. New York for instance, where rent has become so high because some renters used to be buyers and couldn't get access to the loans you're talking about.
You know, Mark (inaudible) because he forgets he's in the real estate agency. These guys are supposed to be talking to -- and he's talking about what's really going on out there.
OK, thank you for keeping me honest on this. The bottom is probably -- we're probably there or we've reached it. It's not getting much worse. That doesn't necessarily mean it's the time to buy, but give it a serious thought.
Alan Feldman is the CEO of Resource Real Estate. Mark Zandi is the chief economist with Moody's Analytics.
All right, unlike GM and Chrysler, Ford did not take a government bailout. But in order to avoid bankruptcy, Ford had to put its heritage on the line and now they've got it back. I'll explain next on YOUR MONEY.
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VELSHI: Ford has its blue oval back. On Tuesday, Moody's Investors Services raised the automaker's credit rating from junk to investment grade. By the way, those are people you're looking at celebrating the return of the blue oval.
Ford was forced to put up the rights to its logo and other assets as collateral in 2006. When the company restructured its debt and that move allowed Ford to avoid bankruptcy.
If Ford had declared bankruptcy after that, the logo, the ability to market itself as Ford would have been up for sale. Six years later, they have climbed out of its economic hole thanks to years of strong profits.
I spoke with the Executive Chairman Bill Ford and asked him what the upgrade to the credit rating means for Ford.
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WILLIAM FORD, EXECUTIVE CHAIRMAN, FORD MOTOR COMPANY: What it does for us is ultimately it will allow us to borrow cheaper and allow more people to own our bonds because we're investment grade. It's really a reaffirmation by Moody's that our plan is working and they anticipate it will continue to keep working.
There was a pit in my stomach when we had to pledge those assets and sign those papers. Those aren't just cold, hard assets. Those are about as emotional as it can get for me, my family and the employees of this company.
But we felt it was the right thing to do, because we had a plan. We had a really good management team, and I believed all along that it would work. The only question was, would the economy get so bad that our plan wouldn't be able to take hold?
But fortunately, our plan did take hold and we've clawed our way back and we're in very good shape now.
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VELSHI: Bill Ford remains optimistic about Ford's growth, especially in Asia and the Americas. You can see more of that interview on our web site, cnn.com/yourmoney.
Thanks for joining the conversation this week on YOUR MONEY. We are here every Saturday 1:00 p.m. Eastern, Sunday at 3:00. Stay connected to us 24/7 on Twitter. My handle is @alivelshi, the show is @cnnyourmoney. Have yourself a fantastic Memorial Day weekend.
