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Texas Picks up Pieces after Ike; South Texas Troubled with Gas Shortages; Two Wall Street Icons Crumble, Stocks Fall; Henry Paulson Holds Press Conference
Aired September 15, 2008 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, CNN ANCHOR: Ike's aftermath and a major shakeup on Wall Street. Two big stories we're following right now in the NEWSROOM. I'm Christine Romans in New York, in for Kyra Phillips, along with Betty Nguyen, live in Galveston, Texas.
Hi, Betty.
BETTY NGUYEN, CNN ANCHOR: Hello, Christine.
Yes, here in Galveston, Texas, there is extensive damage from Hurricane Ike. We will have the latest.
Good afternoon, everybody. Here in Galveston, Texas, there is really so much damage to show you.
Just take a look at what is behind me. These are two sailboats that have washed ashore in this Category 2 hurricane. This little anchor right here was no match for Hurricane Ike. In fact, 150 buildings have collapsed on Galveston Island.
Some 2,000 people have already been rescued. That is the good news, but the bad news is that search and rescue operations are still underway. They're hoping to take some 10,000 people off of this island and deliver them to safety.
But take a look at the damage that was left behind. We are at a place that is called Aunt Margie's Bait Shop. Hopefully, Aunt Margie made it out alive, because her shop, it's literally gone. Nothing but debris. There is glass everywhere.
It's one thing to show you this kind of damage and hear it, but it's another thing to smell it. Not only has all this debris washed ashore, but also, you have dead fish, like this one right here that is washed ashore, and that is causing an incredible stench in this area.
Again, as mentioned, there's a lot to be done here on Galveston Island. The power is out. This island is essentially cut off from the rest of the world. They're only letting emergency crews into the island because of all the danger.
Hurricane Ike really did pack a powerful punch. There's some 27 people dead across six states, so that gives you an indication of this storm.
To get you the latest on this, we're hoping to hear from Governor Rick Perry, Texas Governor Rick Perry. He's been touring Beaumont, Texas, as well as Orange, Texas. He's going to give us an update, with the latest on what he's been able to find.
Back here in Galveston, Texas, though, they're going to be having a news conference, as well, any minute now. City officials are going to give us, really, what they know as to the extent of this damage, when power will be back on, and when people will be able to get back on this island and see what's left of their homes.
In the meantime, though, a lot of people have been following the storm, because it has really left its mark on many states. Chad Myers has been following it, and he joins us now with the latest.
Hey, there, Chad.
CHAD MYERS, CNN METEOROLOGIST: Hi, Betty. We have some dramatic pictures. Obviously, we love getting iReport pictures in, but some of them kind of tell more of the story than others. Others just show piles of debris.
But the one that we're going to show you here actually shows this part of Galveston Island. Zoom right on down here. A couple of houses on the water, across the other side of the road, all the houses here. Click on that little picture right there, and you'll be able to see -- this is really amazing. This is called Street View on Google Maps. And this Street View -- there's a guy standing at his balcony right there. This is a blue house on the west side of the main road. And then there are all these houses that are on the ocean. The ocean would be right back here. One, two, three, four, five. Hey, hey! One, two, three, four, five houses, and then that house right there.
Well, now I want to show you the iReport that we got in with that same blue house on the right and then all of these houses here that well, don't exist. Do we have that video?
We don't have that video. OK. Well, then maybe we'll do this -- we'll do this later. That kind of ruins that event -- Betty.
NGUYEN: All right, Chad.
Back here on Galveston Island, as mentioned, there is a lot of work to be done. But this is just one of the many areas down here in south Texas that have seen just the brunt of this storm.
Up north a little ways, in Houston, Texas, some two million people are still without power. They're running the electricity in their homes, those who survived the storm, off of generators. And those generators require gasoline. The problem is, few gas station are open.
(BEGIN VIDEOTAPE)
NGUYEN (voice-over): The hunt for gasoline in Houston has lines nearly four hours long.
UNIDENTIFIED MALE: I never thought I'd wait this long. But I need it. I've got to have it. That's the only way I can run my generator.
NGUYEN: As lines wrapped around the block, frustration began to set in.
UNIDENTIFIED MALE: Absolutely (ph) have to keep people from fighting. All of us, young, old, everybody, ready to swing on each other about these lines up here.
NGUYEN: But ahead in line, there are signs this station is running low.
Meanwhile, an argument breaks out in another line.
UNIDENTIFIED MALE: She has an unauthorized container.
UNIDENTIFIED FEMALE: She brought a Home Depot bucket. Going to fill it up with gas?
UNIDENTIFIED MALE: And then milk cartons, she's going to put gas in.
NGUYEN (on camera): They're not going to let you put gasoline in that.
UNIDENTIFIED FEMALE: But what can I do? Everywhere is closed.
UNIDENTIFIED MALE: We only have super.
NGUYEN (voice-over): Back at the pump, the only thing left is super unleaded.
(on camera) You weren't planning on paying those super prices, though, were you?
UNIDENTIFIED MALE: No. Sure wasn't, but it's better than nothing.
NGUYEN (voice-over): Especially when you're already out of gas.
(on camera) Are you helping so you can get further up in line, or are you helping because you're just being a good Samaritan?
UNIDENTIFIED MALE: I'm helping both.
NGUYEN (voice-over): Aid also comes in the form of a donated gas container. Only problem: this station is on empty.
NGUYEN (on camera): Can you make it to another gas station?
Then you have folks like this who don't even have gas to get to another station. What are you going to do now?
UNIDENTIFIED FEMALE: We're just going to push the car over to the parking lot over there behind us. And then we're just going to call a friend to come out here and, you know, give us a ride.
NGUYEN (voice-over): The trick now is finding another place to fill up.
(END VIDEOTAPE)
NGUYEN: And good luck with that, because you know, the search for gasoline here in south Texas has really turned into desperation.
I spoke with a lot of folks yesterday who, in fact, told me that they were going back to work today, so that meant they needed enough gas to get to and from. We heard from the mayor of Houston yesterday, urging city officials to get back to work. They're trying to get this up and running, this area up and running, but Galveston right now is at a standstill. If you try to get gas in Galveston, you are completely out of luck -- Christine.
ROMANS: All right, Betty. You know, Houston isn't the only place feeling pain at the gas pump. AAA says nationwide the average price of regular unleaded jumped nearly a nickel overnight to $3.84 a gallon. That average has gone up 17 cents in the three days since Ike hit the Texas coast. Eleven states have prices above $4 a gallon. Most of them are in the south and in the Midwest.
Wall Street has seen a hurricane of its own. One giant, Lehman Brothers, can't find shelter in a financial storm and files Chapter 11 bankruptcy, the biggest bankruptcy in history.
Another icon of Wall Street, the troubled Merrill Lynch, will never be the same. Bank of America is buying the company in a $50 billion stock deal. All this market turbulence has torpedoed stocks today. The Dow, the S&P, and the NASDAQ, all down.
Let's check in with CNN's Allan Chernoff in New York.
Allan, let's talk about Lehman Brothers. A hundred fifty-eight years in business. Apparently, there were no saviors left.
ALLAN CHERNOFF, CNN SR. CORRESPONDENT: Yes. People here are simply stunned that this has happened. Many employees figured, well, at the last minute, something would save the firm. There was an extraordinary series of meetings held over the weekend at the Federal Reserve Bank of New York...
UNIDENTIFIED MALE: This is the fall -- we need Lucas Delbate (ph) here...
CHERNOFF: ... and simply was not able to haggle...
UNIDENTIFIED MALE: We need Lucas Delbate.
CHERNOFF: Pardon me. They were not able to actually have...
UNIDENTIFIED MALE: Lucas Delbate can save us. Why don't we talk about Lucas Delbate?
CHERNOFF: ... the Treasury Department and the Federal Reserve come in to rescue.
UNIDENTIFIED MALE: Lucas Delbate is a good person. Lucas Delbate. CEO of (INAUDIBLE)
CHERNOFF: Christine, let's head back to you because, obviously, we have a little bit of injured feelings over here. And we'll -- I'll be back shortly.
ROMANS: Yes. Yes, I'm sorry about that, Allan. Obviously, people are very worked up there in front of the Lehman Brothers headquarters. And really, all morning we've seen a lot of people gathered out there, after taking their boxes out, very -- a very emotional scene, of course. All right. Thanks, Allan.
Lehman Brothers started as a general store in Montgomery, Alabama, in 1850. Today, the company provides money to corporations, governments, and people with a whole lot of money. It buys mortgages and sells them as securities to investors and has gotten burned in this housing crisis.
If you're worried about what Lehmans' collapse means to you and your money, stick around. The chairman of the SEC, the Securities and Exchange Commission, will join us in just a few minutes.
In the wake of today's shakeup, stocks are diving. We'll check in live on Wall Street.
The candidates are also talking about issue No. 1 right now. John McCain's stumping in Florida. Barack Obama is in Colorado. We'll hear from both of them.
(COMMERCIAL BREAK)
ROMANS: With Lehman Brothers' collapse, Merrill Lynch's sale and a lack of confidence, Wall Street is not the Wall Street of Friday. What set this in motion and what could happen next? Let's ask Andy Serwer. He's managing editor of "Fortune" magazine.
Andy, the deal-making, and at least the negotiations, continues to this very moment.
ANDY SERWER, "FORTUNE" MAGAZINE: That's right, Christine. Sources telling us AGI, the insurance giant, obviously scrambling right now to get itself weighted. And we understand that JPMorgan and Goldman Sachs may be in conversations to try to form a consortium to help that troubled insurance giant.
So there's still a lot of moving pieces right now. And this is the most tumultuous period I can recall my entire life on Wall Street.
ROMANS: Yes, me, too. And I think that what we're seeing right now is we're seeing the industry trying to clean itself up here, because the message from the Fed was, "We bailed out Bear Stearns. We bailed out Fannie Mae and Freddie Mac, but Lehman, we can't do it again."
SERWER: Yes. And I think that there has to be consequences to bad behavior. You have kids. You know exactly what that's all about. And really, sort of simplistic in that sense. Lehman Brothers, though, is very different from a company like, say, Washington Mutual. So you know, you can't say that the feds will never bail out another company again in this crisis. Lehman Brothers is a special situation. It's a wholesale bank, which means it mostly deals with other businesses, not consumers so much. And also, it had been a long time coming. That was Hank Paulson's line, apparently.
ROMANS: There's a big difference between Washington Mutual and Lehman Brothers. I mean, -- I mean, when you start to hear concerns about what's happening in Washington Mutual, that's something that people sitting at home can say, "Oh, wow. I have an account there." You know?
SERWER: That's right. I mean, they have a lot of branches; obviously huge in the mortgage business.
Let's remember, though, Christine, you know, there have been bank failures in this country. There will be bank failures in this country. Not to suggest that Washington Mutual...
ROMANS: Right.
SERWER: ... is one of them, by any means. But people have not lost money in these bank failures. You have to go all the way back to the 1920s and 1930s, and we are not going to repeat that particular scenario.
ROMAN: And remind us again: we have a government arm called the FDIC, which is there to ensure deposits up to 100,000 for your bank account at home.
SERWER: Yes. That's correct, and that stuff was not in place back during the Great Depression. It is now. And that makes it a whole different ball game.
ROMANS: Let's run down to the New York Stock Exchange and Susan Lisovicz is there.
Susan, a lot of talk about the Great Depression and the worst since this and we don't know. We don't have a road map or an unchartered territory. A lot -- a lot of hyperbole out there. What's happening on Wall Street?
SUSAN LISOVICZ, CNN CORRESPONDENT: Well, you know, remarkably enough, everyone -- everyone is saying this is unprecedented. They're comparing it to the crash of '87 or the collapse of long-term capital or even the Great Depression.
The bottom line is, we're seeing a lot of resilience on Wall Street. I know that sounds a little odd, because the Dow is off 252 points. But the point is that these are uncharted waters that we're in right now, and it's not just one big financial institution that failed. Yet another one pushed into -- pushed into -- Bank of America, which really took everyone by surprise over the weekend.
And AIG, the nation's largest insurance company, the fact that it has not announced a restructuring plan. Yes, there are a lot of reports about what may or may not happen, and that seems to be -- well, AIG off of its lows for the session. Having said that, its stock is down nearly 50 percent on the day. So and Washington Mutual, by the way, it's shares are down 16.5 percent. There are a lot of questions.
When there's this much uncertainty, you can really see investors come unhinged. And that's why I'm saying 250 points is not bad on a day that we're seeing today.
Here's a silver lining, if you will: oil is down $4 today. Down $4. We're seeing double digits for the price of oil today, under $100 a barrel. But the greater news, is what is happening with the nation's financial system. The Fed, again, announcing extraordinary measures over the weekend, but the extraordinary measures do -- not extending to bailing out Lehman. I think it drew the line in the sand there -- Christine.
ROMANS: And you know, on the campaign trail, we heard from the president today. We've heard from Barack Obama and from John McCain.
Andy, the next president of the United States has very detailed plans for their economic plans, what they'd like to do, but the first and foremost, they have to put out a fire here.
SERWER: They do. And they also have to get their brain wrapped around what's going on. I mean, this situation, we haven't been there before. You have to stabilize the housing market. You have to stabilize Wall Street. You have to recalibrate the regulatory environment.
And the other thing that's going on that's very important to realize is exhaustion, Christine. The people on Wall Street and the people in Washington, regulators, are really getting very, very worn out. And it's really taking its toll. I mean, you think about Hank Paulson, Bernanke, all these people worked last weekend. They worked the weekend before that on Fannie Mae and Freddie Mac. I guarantee you, people are going to be working this weekend, too. So you know, that becomes part of this, you know. And it really starts to wear people down. So you know, at some point, this has got to be over.
ROMANS: Says a man who's been working last weekend, the weekend before and the week before that.
SERWER: And you, too, I'm sure, right?
ROMANS: Andy Serwer, thanks so much. Susan Lisovicz.
CNNmoney.com is all over the wreckage on Wall Street: from the failures and fears to the road ahead and what impact all of this will have on your money.
What does this meltdown mean for your cold, hard cash and investments? SEC Christopher Cox joins me live right here with details you want to know.
(COMMERCIAL BREAK)
ROMANS: With just seven more Mondays until the election, the candidates are kicking off another week, trying to talk their way into the White House. Senator John McCain spoke last hour in Florida, and Senator Barack Obama is speaking this hour in Colorado.
And of course, Wall Street is the leading topic today on the stump. Lehman Brothers, bankruptcy and the financial mess in general. John McCain talked about making change just a little while ago in Orlando.
(BEGIN VIDEO CLIP)
SEN. JOHN MCCAIN (R-AK), PRESIDENTIAL NOMINEE: We're going to reform the way Wall Street does business and put an end to the greed that has driven our markets into chaos. We'll stop multimillion dollar payoffs to CEOs that have broken the public trust.
And we'll put an end, as I said, to running Wall Street like a casino. We'll make businesses work for the benefit of their shareholders and employees. And we'll make sure that your savings, IRAs, 401(k) and pensions are protected.
(END VIDEO CLIP)
ROMANS: Campaigning in Michigan all day today, Democratic VP hopeful Joe Biden weighed in with a zinger targeting McCain.
(BEGIN VIDEO CLIP)
SEN. JOE BIDEN (D-DE), VICE-PRESIDENTIAL NOMINEE: He says that we've made great progress economically in the Bush years. Ladies and gentlemen -- ladies and gentlemen, I could walk from here to Lansing, and I wouldn't run into a single person who thought our economy is doing well, unless I ran into John McCain.
(END VIDEO CLIP)
ROMANS: Biden's rival in the VP race, Alaska Governor Sarah Palin, heads to Ohio for a fundraiser tonight. But at her morning event in Colorado, she focused on the money matters at hand and the government's hands-off approach.
(BEGIN VIDEO CLIP)
GOV. SARAH PALIN (R-AK), VICE-PRESIDENTIAL NOMINEE: This crisis is an issue of real concern: not only for those in our financial markets, but for the people across this great country. It's taking a toll on our economy, and that means people's life's savings. And I'm glad to see that, in this case, the Federal Reserve and the treasury have said no to using taxpayer money to bail out another one.
(END VIDEO CLIP)
ROMANS: The Wall Street meltdown might have you wondering if your money is safe. The chairman of the Securities and Exchange Commission, Christopher Cox, joins us now from Washington for an exclusive interview.
Welcome to the program, sir. What's your -- your first piece of advice for people who have woken up this morning and have heard us referring and Wall Street referring to yesterday as Black Sunday? In Lehman Brothers in particular, what should -- what should consumers take home?
CHRISTOPHER COX, CHAIRMAN, SECURITIES AND EXCHANGE COMMISSION: Well, you know, the Securities and Exchange Commission is focused on making sure that the 83,000 customers, or retail customers of Lehman Brothers, are protected with their securities and their cash will be right there where they need it to be. And I think we can say this morning that that's exactly the way things stand.
Lehman Brothers is actually a broker dealer in the United States, being handled outside of bankruptcy. It's doing business for normal. If you are one of those 83,000, you can deal with Lehman Brothers as you always have. We are looking forward to very, very quickly resolving it outside of bankruptcy so that customer cash and customer securities are fully preserved.
ROMANS: I think a lot of people don't understand exactly what it is that Lehman does and how it might be different from their bank down the street. And they're asking questions about "What does this mean for my money? What does this mean for my bank account? What does this mean for my kitchen-table economics in general?"
COX: Well, you know, there were two big pieces of news over the weekend concerning broker dealers: Merrill Lynch, as well as Lehman Brothers. And Merrill Lynch of course, has many, many more customers: some ten million retail customers. If you're a Merrill customer, you just continue dealing with Merrill as per normal, as well. That was a normal commercial transaction that took place in the marketplace with Bank of America being the acquirer (ph).
The result of all of this change over the weekend is probably that, for the long haul, the U.S. economy and the financial services sector is going to be stronger. These have been big shocks to the system, and one looks at the market reaction today. Notwithstanding the magnitude of the shocks, the markets seem to be reasonably resilient, taking this news, if not entirely in stride, then with a minimum of disruption.
Our aim at the Securities and Exchange Commission is to make sure that the market mechanisms continue to work as they're supposed to. That seems to also be happening.
ROMANS: Remarkable meetings over the weekend between people from the government and, you know, titans of the American banking system. Can you tell me what role you and the SEC played in those meetings?
COX: That it really was, an extraordinary weekend. After working with Lehman Brothers over weeks, on Friday I flew up to New York, along with Secretary Paulson, in a private plane, arrived for a meeting on Friday night with leading bankers and CEOs of financial institutions to try and see what we could do to rescue Lehman Brothers and to address the other crises that we were facing over the last few days.
That extended into Saturday and into Sunday. I just got back to Washington, D.C., at 7 a.m. this morning. So it was quite a long time with just naps in between.
We were, I think, very, very pleased to see the Bank of America/Merrill transaction work out. And we're going to make sure that we take care of all those customers of Lehman Brothers, as we go into the coming week.
ROMANS: Was there any -- was there ever any inclination to do another bailout? I mean, after Bear Stearns and then Fannie Mae and Freddie Mac, I mean, was there any indication or any idea that maybe you would have to do it again? Or was this -- did -- did Secretary Paulson and you and others say, "We can't do this again"?
COX: Well, you know, when it comes to financing transactions, I won't say of this sort, because it's so unusual that it's done at all. The Federal Reserve made an extraordinary decision in March in connection with Bear Stearns. They made it plain at the time that this couldn't be the norm.
And I think, given the substantially larger size of Lehman Brothers, given the other problems that might be on the horizon, it's vitally important that we establish means to work this out, in addition to special or extraordinary Federal Reserve facilities. That is, in any case, the judgment that the Fed and the treasury made.
The Securities and Exchange Commission, for our part, is there as regulator to make sure that, whatever the form of the transaction, it works out best for investors and best for customers. That's what's happening right now.
ROMANS: Can you tell me -- is there any way, you know, now, looking back, where regulators failed? Where the watchdogs weren't watching what they were supposed to? And do, maybe, we need to rethink Wall Street regulation heading into the next presidential term?
COX: Well, there's absolutely no question, Lehman Brothers being the most recent example, that the creation of all of these toxic real- estate-oriented securities, which started with the creation of a lot of shaky loans, undocumented loans...
ROMANS: Right.
COX: ... no-doc loans, no-income loans and so on. All of the below-market rates and so on, that all of this that has spread through the entire system -- some of it had been booked off balance sheets, a lot of it missed and rated AAA by the credit ratings industries -- has created a perfect storm for our markets.
ROMANS: Right.
COX: At each part of that system where it failed and failed and failed again. Not only is the United States and all of our regulators busy on this problem, but we are spending an enormous amount of time coordinating, as we did this weekend, with our counterpart regulators overseas, in particular in the U.K. and in Germany.
ROMANS: All right.
COX: And in Japan, with Lehman Brothers.
ROMANS: SEC Chairman Christopher Cox. Thank you so much, sir.
COX: Glad to join you (ph).
ROMANS: And we head back to Galveston, Texas, now where our Betty Nguyen is standing by.
Hi, Betty.
NGUYEN: Hi, there, Christine. In fact, search and rescue operations are underway. As you can see a little bit off in the distance, we just saw three helicopters come through the top of this area where we're standing, which is into West Bay, Galveston. They're obviously trying to find areas that need help, where people may have ridden out the storm.
We're going to have the latest on those operations, coming up right here in the CNN NEWSROOM.
(COMMERCIAL BREAK)
NGUYEN: Hello, everybody. I'm Betty Nguyen coming to you live from Galveston, Texas, where debris is simply everywhere. If you just take a look around in pretty much any direction you're going to see scenes like this -- scattered all over this island. One hundred and fifty buildings have collapsed.
The good news is 2,000 people have been rescued from this area, but it's not the only area that's seeing damage and a lot of problems on their hands. Over in Kemah, Texas, which isn't too far away, I want you to take a look at what we were able to find.
(BEGIN VIDEO CLIP)
NGUYEN: As Hurricane Ike came ashore, families along Galveston Bay expected to lose shingles off their homes, but who would imagine losing an entire roof? This is what's left of someone's home. In fact, if I walk down here, you can see there's a mailbox here. I don't even know if it belongs to home where this roof used to cover. But if you look inside there are some items. I'm not seeing any bills or mail in there, I guess that's a good thing.
But all along this bridge that connects Kemah to Seabrook, just loads of debris. Right here's a baseball. Some kid is missing his toy. But that doesn't even compare to some of the items that we've been looking at. There's some toothbrushes over that way, I've got a chair here. There's a couch down the way. Honestly, when you look at this, it just really shows you the devastation of Hurricane Ike. Because when you put it in perspective, this isn't just a bunch of junk that has washed ashore. These are items of people's homes. These are memories and right now it's no telling how long it will take for people to clear this off of this roadway and for this town to get back to normal.
(END VIDEO CLIP)
NGUYEN: And I have to be honest with you, it's going to take a lot of heavy machinery to clear that debris off the roadways.
I want you to see some of the pictures that I took while I was out there in Kemah, Texas. You can see in one of them a chair in the foreground and in the background that debris goes on and on. It stretches across that bridge. And when you look closely in the debris, you can see little small items from people's homes. Whether it's a sign, a plaque, that may have hung on a wall like one that I took of a heart shaped sign that was in someone's house at some particular time, but right now it's probably going to go in a dumpster somewhere because they've got to move all of this debris off of that bridge so they can get things up and running again.
And speaking of getting things up and running again, take a look at the local Dairy Queen there. Under water -- it's under about four to five feet of water. There's no one going to be going through that drive thru any time soon. Have no idea when they're going to be able to get in and assess the damage.
But what's really interesting about that particular picture is if you look at the big sign outside, on it says, Now Hiring. I have a good feeling that they won't be doing that any time soon. But what they are doing, in fact they're doing it right now, is they're holding search and rescue operations in and around Galveston Island, Kemah, Texas, the areas that were hit really hard by Hurricane Ike.
And Ed Lavandera has the latest on what they are finding.
(BEGIN VIDEOTAPE)
ED LAVANDERA, CNN CORRESPONDENT (voice-over): Flying over the destruction and looking for survivors isn't easy, especially when one of them, like this man, is floating on mangled debris, only wearing a life vest. An Air Force rescue team pulled him to safety from Crystal Beach, Texas, a small coastal town desolated by hurricane Ike.
STEVE MCGRAW, TEXAS HOMELAND SECURITY: This is the largest search and rescue effort that Texas has ever taken. Starting in the east and going all the way west. And house by house, block by block, search and rescue.
LAVANDERA: Carrying and moving the elderly is proving to be a challenge once again. An elderly man had to be rescued from his care after driving into high water along Interstate 10. And state officials say they are looking into how and why nearly 300 people were abandoned at a nursing home. And at another nursing home in Houston, the elderly had to be moved out because of damage to the building.
JOE BOTT, NURSING HOME OFFICIAL: Well, we had part of the roof tear off and water coming in the roof. In the parking lot we were waist deep and chest-high in water. And it was just -- the winds were howling.
LAVANDERA: But across the region, there are miles and miles of damaged homes that need to be inspected. An exhaustive search to make sure there aren't more victims trapped in the rubble.
(on camera): On Sunday, several thousand people had to be evacuated and moved to shelters in San Antonio and Austin. A sign that life here will take weeks, if not months to return to normal.
Ed Lavandera, CNN, Houston.
(END VIDEOTAPE)
NGUYEN: From a bird's eye view, you can only see remnants of what used to be standing there, homes. But when you get back on the ground here in Galveston, this is what you're going to see -- this is a boat inside what used to be a bait shop. On the floor here you have what's left of a computer right next to the top of the commode here. And because of all of the damage, some of the storm surge in this particular area was 12 feet high. It blew through this building, taking out walls, which means I can actually walk through a wall, at least what's left of a wall. And you've got to be careful because there is glass everywhere.
This is the situation and so many families are going to be coming home to this. This may be a business, but right down the street it's someone's home. So if you're watching, I know many of you want to do something about it. And at CNN you can. Just logon to Impact Your World and we'll show you how -- Christine.
ROMANS: All right, Betty. Thanks.
Lehman Brothers and Merrill Lynch, could there pain be your loss? Let's talk about that with CNN personal finance editor, Gerri Willis.
Gerri, what's happening here and (INAUDIBLE) the impact for the average consumer who is watching?
GERRI WILLIS, CNN PERSONAL FINANCE EDITOR: I think there's a lot of impact out there for consumers. Look, you've had trouble in the past, getting money, borrowing money from your bank. Well it could get worse after what happened today.
Credit may be tougher for individuals to get. 401(k) here down as well as we have seen. And I think folks are already disappointed with their retirement investments. Could delay the housing recovery. We just don't know yet. But if it's difficult to get money, it's difficult to buy a house.
At the end of the day, I think the real problem with this is that it may rob consumers of confidence in the financial institutions and situation. People may be less willing to go to the bank. They may go to other options, and that is truly a tragedy. I think that is the real problem. But at the end to have day -- I have to tell you, I spoke with a mortgage broker this afternoon. She says, hey look, Gerri, I haven't heard a thing from banks about them pulling in credit.
ROMANS: Really?
WILLIS: Not a thing, not yet. She even said, and I think Susan Lisovicz said this earlier today, she would have expected the markets to be down 500 points not 294.
ROMANS: And that's something that we were talking about earlier this morning because a lot of people were calling for a bloodbath, using these huge dramatic words. You can never predict how Wall Street is going to react to something. After Bear Stearns, after the bail out of Bear Stearns, a lot of people said well, this could be the end of it, markets are going to go higher, they kind of struggled. But each one of these things is another maybe punctuation mark on the sentence that is all of the trouble in the banking industry. That's at least the hope.
WILLIS: Well, it is. And I think what's interesting about this, consumers have already seen these problems. You've already seen the value of your house go down, you know it's tough to get credit out here. Now it's just really coming home to roost on Wall Street.
Look, if you're out there today, you're wondering what you should do, don't move your money. Look for the FDIC coverage. That's your guarantee that your money in your banks is going to be safe. That means that if you have $100,000 in your checking account and your savings account in the bank, that the government is going to make you hold (ph), $200,000 if you're a couple. There are also protections for brokerage investors out there.
As we know, though, Lehman Brothers brokerage (INAUDIBLE) is a high net worth -- ultra high net worth institution, so a lot of folks out there --
ROMANS: If you're lucky enough to have one of those accounts --
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WILLIS: -- probably savvy out there about this kind of thing.
But at the end of the day, people, take heart here. This means that there's going to be increased scrutiny on financial institutions and hopefully that will bring about a better result than what we've been seeing.
ROMANS: If you have an account at Merrill Lynch, we've also been saying, that it is being acquired by Bank of America. We don't know what kind of changes they're going to make there, but you can assume that your money is still there at Merrill Lynch.
WILLIS: Absolutely. An interesting thing that could happen there -- I think Bank of America will probably try to keep that branding so you'll continue to be a Merrill Lynch brokerage client. But, you should know that one of the things that happens when these brokerage firms change hands, is that a lot of brokers may not like that. They may jump ship. They may go to another brokerage. So there could be some turmoil for people who actually have brokerage accounts with Merrill Lynch, but at the end of the day, you do have protections from the federal government.
ROMANS: All right, Gerri Willis. Thank you so much, Gerri.
We're standing by for a live campaign event from Senator Barack Obama in Grand Junction, Colorado. Barack Obama, as you can see, is now on stage. We're going to listen in when he gets started. We're back in a moment.
SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: Thank you, Colorado...
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ROMANS: Keeping an eye on the Dow, right now it's down about 284 points.
Senator Barack Obama is campaigning in Grand Junction, Colorado right now. This is the first time a Democratic presidential candidate has visited Grand Junction in 60 years. Let's listen in --
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OBAMA: ... that too many folks in Washington and on Wall Street weren't minding the store, wherefore -- for eight years, we've had policies that have shredded consumer protections, that have loosened oversight and regulation and encouraged outside bonuses to CEOs while ignoring middle class Americans. The result is the most serious financial crisis since the Great Depression. I certainly don't fault Senator John McCain for these problems, but I do fault the economic philosophy he subscribes to because --
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-- it's the same philosophy we've had for the last eight years. One that says we should give more and more to those with the most, and hope that prosperity trickles down to everyone else. It's a philosophy that says even common sense regulations are unnecessary, unwise. One that says we should just stick our heads in the sand and ignore economic problems until they spiral into crisis. Well now, instead of prosperity trickling down, the pain has trickled up, from the struggles of hard working Americans on Main Street to the largest firms on Wall Street. This country cannot afford four more years of this failed philosophy.
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For years, I have called for modernizing the rules of the road to suit a 21st century American and a 21st century marketplace, rules that would protect American investors and consumers. And I've called for policies that grow our economy and our middle class at the same time. In 50 days, you, Colorado, will have the chance to bring about that change.
In 50 days --
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OBAMA: -- in 50 days
ROMANS: All right. We're going to leave Senator Barack Obama in Colorado and head to the White House, where the Treasury Secretary Henry Paulson is taking questions. Let's listen in.
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HENRY PAULSON, TREASURY SECRETARY: ... No. 2, we have an archaic financial regulatory structure that came in place a long time ago, after the Depression. It really needs to be rebuilt. And then there are certain things like for instance Fannie and Freddie, the roots of that -- what we're doing is really living up to our responsibilities which were rooted in congressional charters. They go back decades and then have been perpetuated by Washington.
But again, what we're focused on right now, I think, is the future and the future is stability, orderliness in our financial markets and working through this period. And that's what we're doing.
QUESTION: Specifically (INAUDIBLE) what kind of regulations?
PAULSON: Well I think that there's got to be a balance between regulation and market discipline. You can't rely on one to solve the problem. But it's going to have to be streamlined and more effective regulation. And -- there's major changes that we need and we also need major authorities to wind down financial institutions that aren't banks, aren't depositing -- aren't federal institutions with deposit insurance. We need resolutions and authorities to let us -- to let us deal with situations like Lehman Brothers.
QUESTION: How concerned are you about commercial banks and what is your (INAUDIBLE) concerned about (INAUDIBLE) the banking (ph) account, the checking account?
PAULSON: Well, I've got to say our banking system is a safe and a sound one. And since the days when we've had federal deposit insurance in place, we haven't had a depositor who's got less than $100,000 in an account lose a penny, so the American people can be very, very confident about their accounts and our banking system.
QUESTION: And when you talk about --
PAULSON: Excuse me, let me make sure -- yes.
QUESTION: I'd like to ask two things if I can. Can you explain a little bit more about the additional authorities that you think might be needed. Is there going to be additional regulation or additional legislation?
PAULSON: Well, let me say -- in the intermediate and longer term, clearly, we need a -- we're going to need major regulatory changes. I've spoken a lot about that. And we could use additional authorities to deal with non-bank financial institutions. But again, that's going to take longer for Congress to do and right now we're working with the tools we have, which you're finding is the Fed, the SEC, Treasury, the FDIC, we're all working together and we're going to do what's necessary to protect this system with the tools we have.
Yes?
QUESTION: Mr. Secretary, this morning (INAUDIBLE) speeches Senator McCain promised, in regards to the economy, he would never put America in this position again. His running mate Sarah Palin said Washington (INAUDIBLE) and (INAUDIBLE).
(INAUDIBLE)
PAULSON: Well, let me say, we're in the middle of a presidential campaign and we're going to let the campaigns fight it out, make their cases to the American people. I'm not focused on politics right now. I'm not looking back, I'm looking forward. This president is very committed to the stability of the financial system, to its importance to the economy and that's where I'm focused.
QUESTION: But don't you accept some of the blame, sir? You've taken steps and -- and the economy hasn't gotten better, the situation is getting worse.
PAULSON: Well, I've -- I would say this, I'm playing the hand that was dealt me. A lot of what I'm dealing with, you know, I'm dealing with the consequences of things that were done, often, many years ago as I said was the case to Freddie and Fannie. That's congressional charters going back decades. That's what Washington has put in place. What we're dealing with there, for instance, is living up to our responsibilities. In other cases we're dealing with, again, the situation as we see it. And again, I'm focused on the stability of the markets and the importance to the American people.
Yes? Right there?
QUESTION: Why did you agree to support the bail-out of Bear Stearns but not Lehman Brothers?
PAULSON: Yes. The situation in March and the situation and the facts around Bear Stearns were very, very different to the situation we are looking at here in September. And I never once considered that it was appropriate to put taxpayer money on the line with -- in resolving Lehman Brothers.
And here, again, I want to -- to commend the financial institutions from around the world for coming together and really taking some very constructive, positive steps to make our market work here. And that's how I'm going to leave that one.
Yes? Yes, The man -- yes.
QUESTION: What exactly (INAUDIBLE) the problems that the capital markets have on rebuilding (INAUDIBLE) along the Gulf Coast (INAUDIBLE)?
PAULSON: Well, I -- I've got to say our capital markets, our response have a big impact on our economy overall. That's why they're important. It's important, as I said in my remarks, to the American people to -- to the growth in our economy, to jobs, and so the capital markets have a big role to play there and so that's why it's so important that we maintain stability there.
QUESTION: (INAUDIBLE) ... more difficult by this?
PAULSON: What we're going through in the short-term doesn't make anything easier. But in the longer term, it's going to make things better because we've got excesses we need to work through and we need to work through them as quickly as possible. And I think we're making progress.
Yes? Yes?
QUESTION: Secretary, you said you're playing the hand that was dealt to you. The president has been is office for six years longer than you have, is the administration playing the hand that it was dealt or is it to blame in any way for what's happening?
PAULSON: I'm -- I've got to tell you that the president has been a great boss as we worked through here. He's been focused on the right thing. I strongly support his economic policies. He knows how important stability in the capital markets are. He's encouraging me to do the right things. I'm going to leave history to the historians and focus on what we need to do today.
Yes, the guy in the blue shirt. And then you'll be next, OK.
QUESTION: Mr. Secretary, it seems like your policy right now is that of a triage with some of the investment banks and hoping that that will solve the situation. Nevertheless, there are a lot of commercial banks that have their investment banking also probably exposed in any of the debt that is represent by the investment house. Isn't the problem really much bigger than simply the investment banks and isn't it really impossible to try and bail out them? And that if you go in that direction for the commercial banks, you're still going to be facing the same problems (INAUDIBLE)
PAULSON: Let me -- I -- your question says where is the root of the problem? And I think I've consistently said that when we look at our financial institutions, the root of the problem lies in this housing correction. And until we stem the housing correction, until the biggest part of that is behind us and we have more stability in housing prices, we are going to continue to have turmoil in the financial markets. And that is why the actions with respect to Freddie Mac and Fannie Mae are so extraordinarily important, not only to our capital markets but to making sure we have plenty of finance in housing because that, in my judgment, is going to be the key to turning the corner here.
Yes, yes.
QUESTION: (INAUDIBLE) Federal Reserve giving AIG a bridge loan?
PAULSON: What -- let me say -- the -- what is going on right now in New York has got nothing to do with any bridge loan from the government. What's going on in New York is a -- a private-sector effort, again, focused on dealing with -- with an important issue that is, I think, important that the financial system work on right now. There's not more I can say than that.
Yes.
QUESTION: When are we going to see the bottom of this? Where are we in the process overall?
PAULSON: Where are we in the process overall?
I want to remind you of one thing, which is when I look around the world and look at the long-term economic fundamentals we have in this country, I think they compare favorably with that I see in any major developed country in the world. So we've got a strong basis in terms of where we are in terms of working through this, I think we've got to go back to the housing correction. Where are we in the housing correction?
And I believe that there is a reasonable chance that the biggest part of that housing correction can be behind us in -- in a number of months. I'm not -- I'm not saying two or three months, but in months as opposed to -- as opposed to years. I think we're going to have housing issues in this country for -- and mortgage issues -- for years, but in terms of getting by the biggest part of this correction, if we can make this Fannie Mae/Freddie Mac effort work the way I would like to see it work, I think we're -- we'll make real progress here.
I've got time for one more question. The woman in the middle there.
QUESTION: Secretary Paulson (INAUDIBLE)
PAULSON: Well, again, I don't look at any one day, any one indicator, any one week. As I've said, we're not going to move through this in a straight line. There are going to be some real rough spots along the road, but I believe we're making progress and when I look at the way the markets are performing today, I think it's a testament to the way the financial industry has come together because they're dealing with an extraordinary set of circumstances and they're dealing in a way we should all be proud of.
Thank you very much.
ROMANS: Treasury Secretary Henry Paulson taking some questions at the White House after a very rough, historic weekend where you had titans of business, Wall Street and the government hunker down, trying to solve some of the problems happening on Wall Street. Treasury secretary saying the American people can be very confident in the American banking system. He said we're going to have housing and mortgage issues for years to come, but he said the worst of this, he hopes, is months, not years away. You can see the Dow Jones Industrial Average now down about 330 points. It's still near the worst levels of the day.
Back with more on a very rough day on Wall Street and more from Betty, live in Galveston, on Hurricane Ike's aftermath. That's right after a quick break.
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