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Impersonators Seize on Palin; Stocks Stir, AIG Struggles; Storm Leaves Massive Destruction; Candidates Pose Solutions to Economic Crisis
Aired September 16, 2008 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
T.J. HOLMES, CNN ANCHOR: Monday was the worst day on Wall Street in seven years. Today, another sinking feeling as the country's biggest insurer fights for its life.
Issues on Wall Street bleed over to the campaign trail. McCain offers his ideas, Obama says his rival doesn't even understand what's wrong.
And President Bush gets to see for himself what Hurricane Ike did to his home state.
Hello there again, everybody. I'm T.J. Holmes, sitting in today for Kyra Phillips, live at the CNN World Headquarters in Atlanta, Georgia. And you are in the CNN NEWSROOM.
All right. Let's talk business. Right about now, there might not be a whole lot of confidence on Wall Street. There is some hope, though. That's good news. Stocks showed a pulse after they took another tumble early today. One reason being, hope that the government will toss a life preserver to the country's biggest insurance company. That's AIG we're talking here. That company's been on the verge of flat-lining as it tries to raise billions to keep going.
You can see there what we talked about, showing a little life today. Started out in the negative territory, but now plus 43, so that's something.
Also, hope today that the Federal Reserve will cut interest rates. We're expecting an announcement on that in about the next hour and 15 minutes.
Our Susan Lisovicz, keeping an eye on Wall Street for us today. Also, our Allan Chernoff keeping an eye on things over at AIG.
Talk to you in just a second, Susan.
Allan, I will start with you. The biggest insurer in this country in trouble. A lot of people have AIG insurance. A lot of people are wondering, "What do I do? Am I in trouble?" So what's up?
ALLAN CHERNOFF, CNN SR. CORRESPONDENT: You should not be in trouble. OK? AM Best, which is the company that rates insurance companies, they've got an "A" rating on the property casualty division of AIG. So they are in pretty good shape. That is the third highest rating. There are only about 10 percent of insurance companies that have higher ratings.
So they're saying -- I just spoke to the analyst a moment ago over at AM Best -- they're saying that this company is stable. Even if the parent company, AIG, were to go into Chapter 11 bankruptcy, the insurance division would still continue to operate, continue to pay out policies.
Now, if you're really nervous, if you're really nervous, yes, you can cancel your policy and go get insurance with another company. You can do it, and it's expected that AIG, because of all this turmoil, probably will lose some customers. But keep in mind, AM Best is saying, "Hey, this is a very solid company." "A "equals an excellent rating.
HOLMES: "A" equals excellent. That's good to hear there. But still, so many are worried about this company, because it is so large. Is that the issue? Because this is such a big company, that you know, one company's problems could cause all of these other problems? Is that what it is? It's just so large? It touches so many things?
CHERNOFF: Part of it is that it's large, but the way things work in the financial world these days, it's almost as if all the big, financial players have created a human pyramid. Everybody depends upon everyone else. If one part of that pyramid falters, well, the whole thing potentially may not all come tumbling down, but you could see major dislocation.
A lot of anxiety that we saw on Wall Street yesterday, with Lehman Brothers going bankrupt, and Merrill Lynch deciding it had to sell itself off. Now, with AIG, were to take a tumble here, as well, that really could get that pyramid falling even more.
And that's why it's pretty important that AIG raise some money right now. And they actually have to do it, because the credit rating agencies yesterday downgraded AIG's debt. So they do have to raise some money here.
HOLMES: Raise some money. What was the number? Seventy-plus billion? Was that the number you gave me earlier?
CHERNOFF: Well, immediately they need to raise about $13, $14 billion or so, but longer term -- and long term is not that long. They need about $70 billion. That's the word right now.
HOLMES: Whew. Allan Chernoff, keeping an eye on AIG for us today.
Let's turn to the woman who's keeping an eye on the markets for us. Susan Lisovicz over at the New York Stock Exchange.
Have investors calmed down a bit today? Is that fair to say?
SUSAN LISOVICZ, CNN CORRESPONDENT: Yes. I think actually, given the magnitude of the events that have unfolded, some of them, real shockers, I think the market has behaved pretty darn well. You know, one trader yesterday said to me, he thought we going to see a plunge of 1,000. Five hundred is nothing to sneeze at, but you know, it was pretty calm and orderly. And the opposite of calm and orderly is panic and indiscriminate selling. And we really didn't see that.
What we're seeing today is a lot of volatility. We basically opened with a triple digit decline and actually, we, had a triple digit gain. We actually saw the Dow put on the plus side 105 points, but a big weight on the Dow 30 is AIG.
You know, Allan mentioned quite eloquently all the problems that, you know, are involved with AIG. And we still don't have AIG raising capital. So what's happening to the stock, which collapsed yesterday, down 60 percent, is that it's down another 35 percent today. This is a stock at $3. Over the past year, it was trading at $70.
So there are a lot of questions about AIG. It's a major financial company with insurance, lots of insurance business. And it has other businesses, as well. Like, for instance, it has an aircraft leasing business. For instance, that might be an asset it would want to sell to raise capital.
But the bottom line, we don't know what AIG is going to do, and that's a weight on the marketplace.
The other weight, big weight this afternoon, is what the Federal Reserve is going to do. That decision in about an hour. You know, it was given a week ago that the Fed was going to stay put until this weekend. And now there are a lot of market watchers that think that the Fed will actually cut interest rates again, another quarter point.
So we're waiting on that. We're waiting to see what policymakers will have to say. And it could be more volatility after that decision at 2:15 Eastern Time.
HOLMES: So just over an hour away. We'll wait on that, and we will talk to you again then. Susan, thank you so much, again, from the New York Stock Exchange.
We did get a little break last month -- you may have noticed -- from gas prices. They were around $3.40, $3.50, $3.60.
Well, look at there: gas prices up again for the seventh straight day. AAA says nationwide now, we're paying an average of $3.85 a gallon for regular. Drivers, though, in 12 states still looking at $4 plus a gallon. The hike's blamed on concerns over supplies because of the disruption Hurricane Ike caused to the refineries.
Oil, a different story. We've been waiting on oil to go down. And now it has. Yesterday crude hit its lowest price since mid- February, just under $96 a barrel.
Of course, you can rest assured we are all over this financial mess for you, trying to make sense out of it. In a few minutes, our Gerri Willis, live with some mutual fund tips. After that, we'll talk to Tim Hansen from the personal finance site Motley Fool. In a tanking market, where should you put your money? Then we'll have an update from CNN's Paul Steinhauser on the presidential candidates' plans to boost this economy.
President Bush getting a firsthand look at the incredible devastation in his home state of Texas. He was there today where he toured the damage from Hurricane Ike in Galveston, as well as Houston.
Three days after the storm now, the situation still considered dire. No doubt about it. Many survive have had to walk for miles and wait for hours just to get things like bottled water, get food, get ice. By the end of the day, 60 distribution centers will be in place. More than a million and a half people still don't have power. Some say they may be stuck in the dark for several weeks, even.
Huge lines have formed, as well, as convenience stores and service stations, but many of those service stations are out of gas right now. Also, a lot of roads and highways still under water.
Well, you've got to see some of these before and after pictures to really believe the devastation from Hurricane Ike. Across the entrance to Galveston Bay on Bolivar Peninsula. Check this out. The resort town of Gilchrist just is not there anymore.
These are some of the pictures from Google Earth of how it used to look, and then what it looks like now. Only one or two buildings in Gilchrist made it through Ike's storm surge. It's amazing to see.
And Jacqui Jeras, you showed us some pictures last hour. I think you've got some more for us here. But this really puts it in perspective and just heartbreaking. May don't even think something like this is possible.
JACQUI JERAS, CNN METEOROLOGIST: Absolutely. And your heart just sinks and goes out to all those who are people suffering because of this.
And I think, you know, you see these pictures over and over again. But it's really still hard to get a handle on how widespread this is. The pictures we've been showing you there, on the Bolivar Peninsula, it's really where the worst destruction was. It's just that right front quadrant. It's right on the right-hand side of where the storm made landfall, where we always see the most devastation. It's very telling of the power of water.
You know, it was the water, the storm surge, that caused all this damage. It wasn't the 110 mile-per-hour wind. It was the force from the water from the ocean pushing up and moving over this area.
Now, here's a couple before and after pictures. And these are from Crystal Beach, which isn't all that far away from Gilchrist. Notice this arrow here and notice also the water tower up there. Well, fade -- this is the before, and now we'll fade through and show you the after picture. Take a look at that. Pretty much everything is wiped out. We've got two houses here, which are still left standing. I'm sure that they were full of water, so it doesn't matter. They're damaged anyway. And now here's another picture showing you -- notice the arrow again here. The before -- and take a look at the after. It's just -- things are just very, very barren. Amazing.
I also want to talk about a couple things that we haven't been speaking much of on our air, and these pictures really help to tell the story. Take a look at that. That is oil in the water. Think of the environmental hazards that are out there and what kind of filth there is, what kind of an impact that's going to have on cleanup and animals, as well.
This is a picture of an actual worker. He is neck deep in water, trying to clear out a drain so that this water can run off a little bit more quickly. And puts it in perspective, you know, the really life-threatening situation that the workers are putting themselves in, to help other people.
And, of course, all the animals. The pets, domesticated, who are also scared and trying to find some refuge and all the wildlife that's been suffering in this storm, as well. So it's impacting so many people and animals on so many different levels -- T.J.
HOLMES: All right, Jacqui. We appreciate you showing us those pictures and giving us some more of a perspective of just how devastating this thing was. Thank you so much.
And that Hurricane Ike really spread its misery far beyond the Gulf Coast there. Parts of the Midwest, as well, still under water. Certainly, a rare sights when folks have to use boats to get around the city of Chicago. City officials there say three days of heavy rain dumped more than 100 billion gallons of water on the Chicago area.
Meanwhile in Detroit, whole neighborhoods were threatened after Ike's remnants dumped heavy rain on the city and the suburbs.
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: The water was actually really scary. We've never seen it this bad before. It was kind of deep. It was getting dangerously close to the houses.
(END VIDEO CLIP)
HOLMES: Also today an area in southwestern Michigan is flooded after an earthen dam broke. About a dozen homes had to be evacuated.
The U.S. economy stuck in the doldrums and consumers worried that things are getting worse. So what are John McCain and Barack Obama saying about it, and how would they fix the problems? We'll find out just a bit later this hour.
And is your bottled water safe? What about your baby's bottles or your eyeglass lenses? We'll tell you about some new health concerns involving some very popular plastic products.
(COMMERCIAL BREAK)
HOLMES: All right. Wall Street in a tailspin. Your head is spinning right about now, trying to figure what exactly to do with your money. And that is where personal finance editor Gerri Willis comes in. She's going to tell what you to do with your money. Kind of sort of.
Are we talking about how this...
GERRI WILLIS, CNN PERSONAL FINANCE EDITOR: What a bossy lady she is!
HOLMES: Yes. Well, you know what? You know what you're talking about. Boss us around all you need to, Gerri. Break it down for us.
WILLIS: Sure.
HOLMES: Heard a lot of talk just from people in the office, walking in today. Everybody kind of took a peek that 401(k). Yeesh!
WILLIS: Exactly. Exactly. Well, OK. Let's take a look at some of the biggest mutual funds out there.
OK. You've got American Funds, Growth of America, Pimco Total Return, Vanguard Total Return Stock Market Index. Here's one everybody has: Vanguard 500 Index. American Funds Euro Pacific. These are the biggest funds in the country, and the reality here is that, no matter how you invest, it's hard to avoid these financial stocks that are in so much trouble.
Listen to this, T.J. In terms of financials, five out of the ten largest mutual funds own Bank of America and Citigroup, and four out of ten own AIG. So they're all going to feel the effects of this.
Look, if the top ten mutual funds were all mooshed (ph) together, almost 14 percent of that portfolio would be in, you guessed it, financial services, banks, S&Ls, insurance companies, investment banks.
So Tony -- or I'm sorry. I'm so sorry. T.J., it's ...
HOLMES: Quite already. We look so much alike. I'm kidding.
WILLIS: Well, I'm always talking to Tony in Atlanta. So -- anyway, it's hard to avoid these stocks.
HOLMES: Yes, it is. It is, of course. Of the numbers we're talking about. Everybody looking at their person -- and they can tell kind of what they're losing, and what's going on there on personal. But just overall, give us an idea of just how much money is being hemorrhaged, if you will, or has been the past couple of days.
WILLIS: It's all red ink. Look at this. OK. American Funds Euro Pacific is down almost 22 percent. American Funds Capital World, down almost 19 percent. Fidelity Contrafund, now there's a popular fund, down 16 percent, American Funds Growth of America down 14 percent. And the fund that I say everybody owns, a lot of people do, Vanguard 500 Index Fund -- that's the S&P 500 -- down 13.5 percent.
Now, keep in mind the Dow and the S&P are down, and down hard so far this year. They've had very poor performance. So all of what's going on this week is on top of that.
Look, if you have a 401(k) you don't want to lose your head here. Don't take your money out of the market when it's hitting low. That's how lose money. Instead, make sure you're comfortable with your allocation amounts, the way you've got your money distributed. This is an argument for distributing your money widely. Make sure you have international funds, bond funds.
And if you're just a little worried about what's in that mutual fund you're holding, go to Morningstar.com. Check out their X-ray tool. This is going to tell you exactly what's in your mutual fund, and you might find surprises there, T.J. I don't know. You know, there's always something in there that maybe you didn't expect.
Of course, we'll be covering this all day long for you.
HOLMES: Not many people need more surprises right about now. But yes, the money lady (ph), personal finance editor Gerri Willis, we appreciate you bossing us around and telling us what to do. We appreciate it, as always.
WILLIS: Thank you, T.J.
HOLMES: This crisis on Wall Street, certainly a hot topic right now on the campaign trail. We'll be live with the presidential candidates when they take on who's at fault and talk about their possible solutions.
Plus, from baby bottles to those used to hold the water and sodas you drink. New worries about a chemical in plastics and what it means to your health.
(COMMERCIAL BREAK)
HOLMES: A picture we're showing to you here out of CTV in Canada, Toronto specifically, where we understand there has been a school shooting, a shooting at a high school.
This information we're working on, trying to get it confirmed. But several reports out that a 17-year-old was shot at this particular high school, the Bendale Business and Technical Institute. Not sure if this student -- excuse me, this person that was shot was actually a student.
Also the word is that the person who did the shooting is right now on the loose. Police are looking for someone who's 18 to 19 years old. Don't know if both are involved here are actually students at this school, but they were certainly at the school at the time when this person was shot.
Again, the 17-year-old had to be taken to the hospital, in serious condition right now. Again, this school, also another school close by, are right now in lockdown. But the reports are that police are looking for a suspect who shot someone at a high school there in Toronto.
We're keeping an eye on this situation. We'll monitor it for you. As we get nor details we'll certainly bring them along.
(BEGIN VIDEO CLIP)
SEN. BARACK OBAMA (D-IL), PRESIDENTIAL NOMINEE: We are in the most serious financial crisis in generations. Yet Senator McCain stood up yesterday and said that the fundamentals of the economy are strong.
UNIDENTIFIED MALE: No.
UNIDENTIFIED MALE: No.
UNIDENTIFIED MALE: No.
OBAMA: That's what he said. Now, a few hours later, his campaign sent him back out to clean up his remarks. And he tried to explain himself again this morning by saying that what he meant to say was that the American workers are strong.
(END VIDEO CLIP)
HOLMES: Barack Obama there on the stump in Golden, Colorado. That was a short while ago. Not easing off one bit in his criticism of John McCain's take on the economic crisis.
From Colorado Obama will head to California for a big fund-raiser hosted by Barbra Streisand.
The economic crisis, also the No. 1 topic for McCain these days. At rally in Tampa this morning, McCain vowed to protect employees and shareholders from what he called "the outrages of Wall Street big wigs, overpaid corporate CEOs and some lawmakers on Capitol Hill."
McCain also promised if he's elected president he will take steps to pull the economy out of its current mess.
(BEGIN VIDEO CLIP)
SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL NOMINEE: You know, Americans put a lot of trust in the bankers and brokerage firms of Wall Street. They depend on the financial service sector to protect their savings, IRAs, 401(k)s and pension accounts, but many leaders in finance have proven unworthy of that trust.
Government has a clear responsibility to act in defense of the public interests, and that's exactly what I intend to do.
(END VIDEO CLIP)
HOLMES: Well, later today McCain will hold a rally in the battleground state of Ohio, along with his running mate, Governor Sarah Palin.
For more on the candidates' take on the economic crisis and their possible solutions, let's bring in CNN deputy political director Paul Steinhauser in Washington today.
Paul, good to see you. Nobody likes to say that the bad news for the economy is good news for anybody, but in a way it's kind of good news for the Democrats, because it puts them back on message and back on the topic that they can make some headway against the Republicans.
PAUL STEINHAUSER, CNN DEPUTY POLITICAL DIRECTOR: Yes. You know, T.J., for two weeks now, I guess we've been talking about Sarah Palin. But now we're talking about the economy again, and not just us, the candidates, as well.
You just played some sound bites there. That's all you're hearing right now, today, yesterday from Barack Obama, John McCain and their running mates. John McCain this morning, he was making the rounds on the morning shows. And he was laying out what he would do.
One step he's talking about is creating a commission, a commission, a high-level commission, to study this economic crisis on Wall Street. Something along the lines of the 9/11 Commission, which made some major recommendations on U.S. security.
He also says he agrees with Secretary of the Treasury Paulson that government shouldn't bail out American International Group. That's the world's largest insurer, which right now is -- you know, is facing some tough times, and its stock has plummeted.
And he blames the old boy network in Washington and corruption for the crisis. He says he knows how to clean it up. Part of that, he says, is regulation. Here's what he told us on "AMERICAN MORNING."
(BEGIN VIDEO CLIP)
MCCAIN: Well, first of all, we have these regulatory agencies, some of them who were asleep at the switch for the last couple of years, or few years, and they were designed for the 1930s.
Now we have an instantaneous global financial situation, and those agencies have to be consolidated. And they have to be given more strength where necessary. And we have to figure out exactly how it is that we can understand a global economy where what happens in the United States of America affects the rest of the world and vice versa.
(END VIDEO CLIP)
STEINHAUSER: You're hearing McCain now talk about regulations, T.J. But you know, McCain and Republicans traditionally not known as major regulators when it comes to Washington and financial institutions.
HOLMES: You know, I'm glad we did this, this morning on "AMERICAN MORNING." Because we had McCain and then had Biden were on, back to back, and had them talking about the economy. So you could really hear the differences and how they really differed on their plans.
So help us understand a little bit -- they were making the case this morning -- really, the real differences, and how they're setting themselves apart from each other and their plans apart from each other.
STEINHAUSER: Yes. And regulation is the key. Because as you mentioned, Joe Biden is making the rounds. Him and Barack Obama have been talking about regulation. That is one of big steps they want to take.
And they're laying them out, as well. They're saying increased regulations on investment banks, mortgage brokers and hedge funds and smart regulation. Not just -- not just any kind of regulation.
They're also talking about streamlining all these overlapping regulatory agencies, because there are a lot of agencies that are almost at odds with each other.
And they're blaming the Bush administration for the crisis. They're saying John McCain would be another four years of the Bush failed economic policies. Here's what Joe Biden told us on "AMERICAN MORNING."
(BEGIN VIDEO CLIP)
SEN. JOE BIDEN (D-DE), VICE-PRESIDENTIAL NOMINEE: Bottom line is, if you come to the federal government, to the Fed to borrow money, we get to look at your books. That's my money. It's the taxpayers' money. We get to look at your books, John. We get to have total oversight. You want to borrow the money, you let us see the inside of your books.
(END VIDEO CLIP)
STEINHAUSER: You know, T.J., one thing is for sure. The economy, it's been issue No. 1 almost a year now. I think this crisis on Wall Street with the investment banks is only going to increase that. Our last poll, 56 percent of Americans said it was the top issue for them in the presidential election. That's only going to increase now, I think.
HOLMES: Yes. It's back on the forefront. Sarah Palin, well, she had that 15 minutes. But we might be getting back to the issues here, possibly, now.
Paul Steinhauser, good to see you, as always.
It's a problem that Sarah Palin would much rather not have on her plate right now: the ethical investigation under way in Alaska involving allegations that she fired her public safety commissioner because he wouldn't fire her former brother-in-law, who was an Alaska state trooper. Now the McCain-Palin campaign says she will not cooperate with the investigation, because the probe has been hijacked by Obama operatives. The Obama camp describes the allegation as complete paranoia.
And Wall Street is taking such a beating. Should you trust your money to a Motley Fool? Well, you roll the dice if you want to. Absolutely, though. We've got some sound advice from one of those fools. Stay here.
(COMMERCIAL BREAK)
HOLMES: All right. It's about 1:30 here in the CNN NEWSROOM. Here are some of the stories we're working on.
AIG, the nation's largest insurer, looking for some solid ground and looking for some cash. The troubled company is in free fall with investors. There are reports the government is considering extending a financial lifeline.
Turning to Texas now, getting help to those who need it most. A massive effort is under way along the coast to help victims of Hurricane Ike. A bit north, the remnants of Ike delivered a soggy wallop across the Midwest, leaving roads and houses under water.
Well the Federal Reserve is set to make a decision on interest rates in less than an hour, actually 45 minutes we're expecting that decision. Just a few days ago, Wall Street was expecting rates to hold steady.
Now, Susan Lisovicz, at the New York Stock Exchange, people have changed their thinking a bit. Has this become the consensus now that this is going to happen?
LISOVICZ: Well, you know, it's interesting, T.J., I was just on the phone with four traders, and super traders. And one said it won't cut, two said that it will cut, one says he doesn't know what's going to happen. That we usually don't have in the marketplace. But then again, T.J., we haven't had these kind of events before. They just came in such stunning succession, such rapid succession, that you know, while the Fed Fund Futures rate tells us that the likelihood is that the Fed will intervene again, you know, it's not necessarily the consensus among people who are working on Wall Street. But the fact is, it is a possibility.
You know, a week ago, Wall Street felt the next rate move would be an increase, the next move would be an increase, but the developments over the weekend changed that. What were the developments? Lehman Brothers went bankrupt after 158 years, Merrill Lynch concluded it couldn't survive alone and agreed a sale, now AIG continues it get hit by several downgrades. it's in danger of failing. Even if the Fed doesn't cut today, economists widely agree that the Fed will at least leave the door open to a reduction in the weeks ahead. And we'll get that with the statement that accompanies the decision in about 45 minutes, T.J.
HOLMES: All right.
What about inflation? That word being thrown around at all in the past couple of days?
LISOVICZ: Well, this is why the Fed was in such a tight corner, that if -- it wanted to raise rates, but when you raise rates, you tighten the money supply and you don't want to do that when the economy is slowing down. And inflation was a big problem with energy prices and food prices. Well energy prices have been tumbling, and we got another example of that with a report that came out this morning.
The Consumer Price Index showed prices actually dipped a bit last month, marking the first monthly decline in nearly two years. And we see it continue to play out in the marketplace. Oil right now is down nearly $4.50 after a $4 drop yesterday. Oil is trading at $91 and change.
So, what we're seeing on Wall Street, in advance of this decision by the Federal Reserve, is that the Dow is actually plus after a decline at its low of 170 points. The Dow is modestly to the upside of 50 points. The Nasdaq is flat. The broader S&P 500 is up about one-third of a percent.
These are -- you know -- these are real head scratchers. I can't think of a technical expression, so I'm just going to say it's a head scratcher going on here.
HOLMES: That works. There's too much technical stuff going on, and a lot of us don't understand because it's so massive. Head scratching works right about now. We all understand that.
Susan Lisovicz, thank you.
LISOVICZ: I'll be back.
HOLMES: Yes, we're 40 minutes away from that decision from the Fed, the announcement, so we'll see you again soon, I'm sure.
And a lot of people are wondering and scratching their heads, what does this mean for your hard-earned money? Let's get some personal finance talk here with Tim Hanson from The Motley Fool, that's his company name. We didn't name it. This company pledges to work tirelessly for the individual investors.
Mr. Hanson -- sir, thank you for being with us. A lot people want to know and want to hear what you have to say. So, let's start with a lot of talk today about 401(k)s, mutual funds, bonds, other investments where people have their money.
What's safe right now and what's not? What's insured and what do you need to be a little concerned about?
TIM HANSON, THE MOTLEY FOOL: Well, nothing is insured in the technical sense that if you make a bad investment decision then someone's going to step in and give your money back to you. But different aspect (INAUDIBLE) have different levels of safety. A Treasury bond is going to be your safest bet, but you're going to give up some potential of the return. Stocks, obviously, are going to be the riskiest. The bonds are in between. And it all really depends on you and what your timeline is.
If you're a young guy, now's a great time to be looking to buy cheap stocks. If you're an older person who is really close retirement, you probably want to protect your principle and make sure you've got a much larger exposure to treasuries and municipal bonds.
HOLMES: But isn't it just tough for people to just sit this one out? There is just so much uncertainty and so many people nervous and they are watching their portfolios and literally hemorrhaging money the past couple of days. But, I've heard so many people say, hey, just wait it out, just ride this thing out.
Would you recommend that right about now as well?
HANSON: That's actually really good advice. Your brain is going to do a lot of things to try to play mean tricks on you. It's going to make you think that the downturn is never going to end, it's going to make you really afraid of losing more money. But really, uncertainty is -- FUN is what I call it, fear, uncertainty and -- and -- I'm forgetting the last one.
HOLMES: Can't be that fun. Come on. You can't even come up with the last letter --
HANSON: FUN is your friend here because it means that stock prices are going to be lower and if you've got enough time to wait it out, the market is going rebound. This happened in 2001, 1987, all the way back -- there have been multiple downturns ever since the Great Depression in '29.
HOLMES: 401(k)s -- should people make an adjustment? You shouldn't necessarily take any money out right now, certainly nobody's recommending that. But should you make any kind of adjustment to how much you are putting into that 401(k)?
HANSON: Yes, it depends on you. If you've been really knocked for a loop by this downturn and you say, I want to take my money out -- well don't take it out, as you said, there are a lot of penalties for that, but you can reallocate it into some safer investments like bonds and treasuries. But if you're, again, if you're a younger person, or you've got 20, 25 years to retirement and you're looking at your 401(k) allocation right now, it's a great time -- great time -- to start doing a disciplined dollar cost averaging approach into stocks because haven't seen valuations levels like this in a long, long time.
HOLMES: Long, long time. When was that last time? Because we've heard several different -- I think Greenspan was the one that said this is something we only see once a century. We hear others talking about, this is the worst since the Great Depression.
Is this -- is this that big event?
(CROSSTALK)
HANSON: I heard somebody yesterday call this a perfect storm inside a perfect storm, which is a little bit absurd. But again, these things do actually happen all the time. You can think back and you remember, we were talking about this in 2001, we were talking about this in '97 with the Asian contagion, '87 was Black Monday. These things happen periodically. And from every one of those points, the stock market rebounded. And people who did best, this is crucial to remember, the people who did best were the people who bought now.
HOLMES: All right. Well, a calming influence for us here in the NEWSROOM, from a fool of all people, a Motley Fool, again. Name of his company, we didn't name him.
This is Tim Hanson. Sir we appreciate you taking the time out here with us and really kind of putting it in perspective for a lot of people. Thank you so much.
HANSON: Thanks so much, T.J.
HOLMES: All right. That's some good advice for the average investor. Now we want to hear from some of you. CNN's Veronica De La Cruz has been checking out your i-Reports on these Wall Street blues.
This must be tough to have to go through some of these. I assume they're not so upbeat?
VERONICA DE LA CRUZ, CNN CORRESPONDENT: Yes. Well, some of them are. Some of them aren't.
So let's go ahead and start with this one from John Hargess (ph). He's a Vietnam vet. He says: "My overall take is that the people running these companies, along with our government, are not doing their jobs. Either through accident or design, people have screwed up royally and need to be held accountable."
We definitely heard a lot of that, T.J.
And John Daily (ph) in Virginia thought that he could remedy the situation by offering to purchase Lehman's for a buck, T.J. He says: "I'm just sorry Lehman Brothers didn't accept my offer." He goes on to say: "... kind of interesting that if you have a mom and pop or a medium sized company that falls on hard times because of a bad business model or changes in the economy, they are allowed to fall by the wayside and no one gives it a second thought."
And Nate in Las Vegas asks the question: "Is it really Bush's fault or is it the bank's fault? The way I see it, the banks have been very, very greedy and bit off more than they could chew. We as the American public bit off more than we could handle by buying houses that we knew in reality we could not afford."
Finally, take a look at this. I think we were just talking about the perfect storm. This is from Jim Brenneman and he sent us this cartoon he calls the storm of the century. And there you see a financial storm, T.J., a big tidal wave all but ready to swallow up Uncle Sam, also the U.S. economy.
So we're asking you what are your thoughts on the situation? Is the fallout on Wall Street affecting you? Go ahead and let us know. Logon to ireport.com.
HOLMES: Our creative i-Reporters, as always.
Veronica De La Cruz, thank you so much.
You all can follow your fortunes at CNNmoney.com. We've got all the day's market news and numbers, expert analysis and a whole lot more.
There is a new commander of U.S. forces in Iraq, and his name is General Ray Odierno. He has succeeded General David Petraeus today in a ceremony presided over by Defense Secretary Robert Gates. The site, appropriate here, a former Saddam Hussein palace outside of Baghdad. Odierno has served two tours of duty in Iraq. Petraeus, who will now head to the U.S. Central Command, is credited with bringing about a sharp reduction in insurgent violence.
Are you sipping on danger? Important medical news about the plastic bottles or containers that are probably in your house right now.
Also news of another tainted product out of China. Why would anyone contaminate milk powder that's used in baby formula? The latest on this scandal and who's now under arrest.
(COMMERCIAL BREAK)
HOLMES: Well, new concerns today about the health risk from a chemical found in a lot of things you use -- plastic bottles, food containers, eyeglass lenses, even baby bottles. Medical correspondent, Elizabeth Cohen, here to fill us in and she brought props.
So tell us --
ELIZABETH COHEN, CNN MEDICAL CORRESPONDENT: We did.
HOLMES: It sounds a little scary.
COHEN: Well, some people would say that it is a little but scary. It's a chemical called BPA. It's in a lot of different plastic products. You can take a look here, it's in these kind of food containers, baby bottles, water bottles, cups. It's even, you see there, T.J., the lining of that is plastic.
HOLMES: I never noticed that.
COHEN: I know. Of course, you probably don't clean out cans very often. And BPA is in linings of many tin cans. And there has been a lot of controversy, is it bad for your health?
So let's take a look at what a new study says. This out of the "Journal of the American Medical Association." And what they found is that people with high levels of BPA in their bodies were three times more likely to get heart disease, also more likely to get diabetes. Now this is not the final word on this controversy, but this is really a landmark study, because, T.J., most of these studies have been done on animals, and this one was on people. So it's a little bit different.
HOLMES: Well if it's dangerous just a little bit, why do we have to use this stuff? BPA -- is it necessary for these products?
COHEN: There might be some way to reformulate products, but boy would that be a major undertaking. So many different products use this.
But today on Capitol Hill, various experts urged Congress to do just that, to ban this product, ban this chemical, and make manufacturers come up with a different way of doing it. So we asked the American Chemical Society, what do you have to say about this? What do you think? The American Chemistry Council, by the way.
"The weight of scientific evidence continues to support the conclusion of governments worldwide that bisphenol A, which is BPA, is not a significant health concern at the trace levels present in some consumer products."
So as you can see, people disagree how dangerous BPA is.
HOLMES: They are saying it's safe at these levels?
COHEN: Right, the folks who make BPA basically were saying that.
HOLMES: And you said it was a major undertaking. I assume that would be expensive as well to find something else?
COHEN: My guess is it would be.
HOLMES: So what should we do? We all have these water bottles, cans, all this stuff. Who knows how high our levels are? But still, should we change anything we're doing?
COHEN: Right, while experts debate what do you do? That's the big question.
And so what you can do, is you can decide, you know what? I want to find BPA-free products because I'm worried. So if you are worried, you can look for BPA-free products, baby bottles, water bottles, pacifiers, sippy cups, all of those are on the market, especially those last two and the first one there. A lot of parents are concerned. Some pediatricians we know are already saying that people should look for BPA-free products.
Here's one, for example. Here's a baby bottle that just says BPA-free on it, right there. Now, even two years ago when I had my baby, you couldn't find this. So this is a relatively new thing.
HOLMES: But it's enough of a concern that manufacturers are starting to put that stuff on there, because -- to tell people it's BPA-free.
COHEN: Right, because some parents really are worried.
HOLMES: Wow. All right.
Elizabeth Cohen, thank you so much for the information. I had no idea about this one and the can.
COHEN: There you go. They're lined, they are, indeed.
HOLMES: I had no idea. All right. Thank you so much. Important information there.
We'll turn it overseas now to the latest on China's tainted milk powder scandal. More suspects under arrest, accused of spiking baby formula with an industrial chemical. Two babies died.
But as John Vause now explains, China officials warn more could be at risk.
(BEGIN VIDEOTAPE)
JOHN VAUSE, CNN CORRESPONDENT: At authorities warn the number of dead and sick children from tainted baby milk formula might continue to rise, police say they've made two more arrests. That makes four people so far accused of mixing melamine, an industrial chemical with raw milk, allegedly to give artificially high levels of protein.
Police say the Geng (ph) brothers, arrested Monday, have confessed to mixing melamine with milk in this milking facility in a small village in northern China. This woman, who gave her name as Geng as well, told me the business is now shut down.
"I think the whole thing has been exaggerated," she says. "I think they're sacrificing the small operators to protect the big ones."
The two brothers acted as middle men between local dairy farmers and one of China's biggest dairy companies, San Lu.
(on camera): This milk distributor is typical of many around the country. The entire village would bring their cows here. The Geng brothers would then buy that milk and on-sell it to San Lu, as much as three tons a day, according to police. It was all spiked with melamine.
(voice-over): Officials say when one of the brothers was asked if he was aware of the dangers of using the chemical melamine, he allegedly replied, I never asked and never thought about it. I only knew it wasn't good for your body.
San Lu management has apologized to consumers and all production has stopped. But many dairy farmers like Feng Xianying are angry. He can't sell his milk and he is blaming the milk traders.
"I hate them," he says. "I've lost so much. Cows don't produce melamine. Why would they add it and destroy us?"
A high-level source close to the investigation has told CNN the use of melamine by milk distributors appears to be widespread, describing it as a highly sophisticated scam, a scam that may have killed innocent children and made others seriously ill.
John Vause, CNN, Hebei Province, China.
(END VIDEOTAPE)
HOLMES: There is more fallout today from that horrific train collision near Los Angeles. Federal safety regulators want to ban engineers from using cell phones. You think they wouldn't be using them anyway if they're operating a train, but they are suspected now to vote on new legislations Thursday.
NTSB is investigating whether a Metrolink engineer missed a stop signal because he was sending a text message. They have now subpoenaed his phone records. Two teenagers say they received the text message from the engineer minutes before Friday's crash. That crash that killed 25 people.
Testimony under way today in O.J. Simpson's robbery and kidnapping trial in Las Vegas. The 61 year-old former football star accused of stealing sports memorabilia at gun point from two dealers last year. He says that memorabilia belonged to him already anyway. The defense hoped to question one of the dealers, Bruce Fromong. Yesterday, his testimony was cut short, when he got ill on the stand. He has a history of heart problems.
Well, food and water, the necessities of life. And that is the top priority right now along the Texas Gulf Coast after Hurricane Ike. We've got the latest are from Houston.
(COMMERCIAL BREAK)
HOLMES: Well, getting food and water to the needy. That's the number one priority along the Texas coast, three days after Hurricane Ike slammed ashore.
We turn now to CNN's Sandra Endo. She's in Houston for us.
(BEGIN VIDEOTAPE)
SANDRA ENDO, CNN CORRESPONDENT (voice-over): Hauling ice, stocking up on food and water. Thousands of victims of Hurricane Ike are lining up, waiting for hours to get basic necessities. 60 distribution centers are now open across Texas. And federal officials say supplies will be available for as long as they're needed.
DAVID PAULISON, FEMA ADMINISTRATOR: We have made sure that there's always two days supply of food and water and ice on the ground, so we're always two days ahead of what we need. And we're shipping in stuff behind that continuously. So we should now have an issue with supplies. They're out there in force now. And every pod that I have seen so far is working pretty well. ENDO: FEMA say they will provide shelter for displaced residents for up to one month. Now, Siere McGall (ph) is one them. He lived in Galveston for 20 years and is flooded out of his house. This is what's left of the convenience store he's owned for more than a decade.
UNIDENTIFIED MALE: If you own something and then you lost everything, it's really hard to heal up.
ENDO: Fuel is a precious commodity. Only a few gas stations are open with motorists lined up around the block.
UNIDENTIFIED MALE: But need it. I got to have it. That's the only way I can run my generator.
ENDO (on camera): Now, this will likely be the scene for many days as people continue to line up, waiting for supplies. And some good news for Houston residents. Streets are reopening; water and power is turning back on. But the long road to recovery continues.
In Houston, Sandra Endo, CNN.
(END VIDEOTAPE)
HOLMES: Also along the Texas coast, many people owe their lives quite literally, to rescue crews. Frank and Deanne Sherman own a record service at Crystal Beach. They stayed home as Hurricane Ike swirled around them, hoping to help others when the storm passed. That was their first mistake. As the water rose, they rode it out in their attic. They were rescued by game wardens.
Listen to this.
(BEGIN VIDEO CLIP)
DEANNE SHERMAN, RESCUED AFTER IKE: I held on to the rafters up in the attic and prayed and prayed and prayed if God would just save our lives, we would get off this peninsula. God saved us. I'm telling you. God's the only thing that saved us.
UNIDENTIFIED MALE: And when you saw these guys roll up in the boat today.
SHERMAN: Oh, these guys -- oh!
(END VIDEO CLIP)
HOLMES: Yes, God and a rescue crew. That'll do it for you to save you when you're in trouble. Well, along with the Sherman's to safety, the Game Wardens also rescued the couple's two dogs and four birds.
Well, stay here. It's enough to make you drive right off of the road. $6.00 a gallon gas. However, this is just an empty promise for now. We'll explain.
(COMMERCIAL BREAK)
HOLMES: Well, not a lot of humor to be found these days in the high prices we're paying at the pump. But an Indiana gas station tried to have a little fun with it advertising a fill-up for $5.99 a gallon. Turns out they were trying to drive customers away.
(BEGIN VIDEO CLIP)
PIPER WITHEY, EMPLOYEE: It's not true. Actually, it's a deterrent. We actually don't have gas or fuel right now and we were hoping to deter people from coming in and wasting their time. But, I guess it's caused more excitement than we actually anticipated.
(END VIDEO CLIP)
HOLMES: Who gets excited about $6 gas. The station said they actually hope to score some more fuel before the gas might actually get to that all scary $6.00 a gallon mark.
Well, the next hour of the CNN NEWSROOM with Rick Sanchez starts right now.
