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AIG Bailed Out By Governent for $85 Billion; U.S. Embassy Attacked in Yemen

Aired September 17, 2008 - 10:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

HEIDI COLLINS, CNN ANCHOR: It's a financial lifeline tied to your wallet. "Issue #1" always your money. And this morning it is our top story once again. The federal government saving insurance giant AIG from possible collapse with an $85 billion loan. All of it, your tax money. The Feds say doing nothing, though, could have cost a lot more. It could have delivered a crushing body blow to the nation's fragile economy and further undermined confidence. AIG, the world's largest insurer is the latest casualty of the nation's worst financial crisis in decades.
Less than two weeks ago, the government guaranteed $100 billion to mortgage giants Fannie Mae and Freddie Mac. So there's an awful lot going on once again this morning. And our CNN Money Team is all over it. CNN senior correspondent Allan Chernoff in New York right outside the AIG headquarters. Christine Romans is at the "Issue #1" help desk just beginning today and waiting for your financial questions. And on Wall Street, CNN's Susan Lisovicz is watching the market. So we want to begin with Susan and investors' reaction now to the rescue of AIG. If we look at the big board and look at the number, I know we're down triple digits.

SUSAN LISOVICZ, CNN CORRESPONDENT: Well, and what it's telling you is that this dramatic move to rescue AIG is not enough, at least right now, to rescue investor confidence. You know, the "Wall Street Journal" is calling these extraordinary moves by the government over the last ten days, ten days that reshaped U.S. Finance. The government's bailout demonstrates just how important AIG is not only to this economy, the world's biggest, but to the global economy as well. AIG Ag shares right now continue to collapse. They're down 41 percent, trading at $2.00. This is a stock that was trading at $70 at its high over the past year. Small investors were at risk if AIF failed because so many mutual funds and money market funds invest in it. AIG is also a Dow 30 stock. It pulled the Dow down 400 points on its own this year.

The Feds are fearful that AIG's problems could spill into the global economy. And that's why it took this action that it really, really did not want to do. We also have other news that is out in this financial sector. Morgan Stanley moved up its quarterly earnings to try to calm down the markets. They were better than expected. It made money. Its profits were better than expected. But its stock has plunged right now down 10 percent on dread that there'll be some news from Morgan. There are some reports that you know Morgan may not want to stand alone either. And that is certainly that we've seen this year where we now only have a couple of independent investment banks. Oil prices are up nearly three bucks. We do get a weekly inventory report at the bottom of the hour. Heidi.

COLLINS: All right. CNN's Susan Lisovicz, thank you for that. I want to go over now to Allan Chernoff. He's outside the AIG headquarters in New York this morning. Allan, last we checked with you, you said a lot of people going into that building this morning with big smiles on their faces?

ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: Yes, absolutely. So at least there is some relief over here. But let's put this in perspective. This is just an extraordinary move by the government to put $85 billion and get 80 percent of AIG in return. I mean, the U.S. government did this simply because it was worried that the financial world would suffer a collapse because AIG is so important to so many different companies providing insurance and also, it had provided insurance for these risky investments in mortgage securities that banks and investment firms around the globe had basically piled their money into, and these investments turned out to be real rotten. As you said, at least this morning we are seeing some relief from employees here at AIG.

COLLINS: Allan, I got to ask you --

(BEGIN VIDEOTAPE)

BILL VELTO, AIG EMPLOYEE: In existence, so to speak, for another two years. So we're happy about it.

CHERNOFF: Yesterday must have been pretty stressful?

VELTO: It was. But a lot of us had a very positive attitude looking at the best.

(END VIDEOTAPE)

CHERNOFF: And everybody is hoping that this works out for the best. This, as I said, is an extraordinary move by the government, and we're certainly going to be hearing plenty of calls for more regulation because those insurance contracts that AIG wrote to protect those investments, there's no regulation at all for them. Heidi, you had a question?

COLLINS: Yes. I did have a question. Sorry about that, Allan. You know, there are some analysts out there that I was watching that said the government actually took a while to decide on this. If they had done it a few days earlier, it might not have been near $85 billion.

CHERNOFF: Well, you know, the government didn't want to do this. The government only did this because -

COLLINS: They said no first.

CHERNOFF: Oh, yes, oh, yes. The Treasury Secretary even just a few days ago said he does not want to use anymore taxpayer money. He did it only as a last resort because the private sector, bankers were not willing to take the risk. They're already suffering billions in losses. They didn't want to assume the losses of AIG, the risk of AIG. That's the only reason that at the last minute the government stepped in. They do not want to make a habit of this. Although it is becoming a habit. So we've got a real problem here. That's one reason the confidence of the markets right now has been shaken badly.

COLLINS: No question about that. Interest rate on this loan very, very high. So I know they're trying to ward off other companies from going this direction, at least right off the bat as AIG did. All right. Allan Chernoff, sure appreciate that, outside the headquarters of AIG in New York this morning.

One of the two Wall Street icons that crumbled earlier this week has a new lease on life now. At least in part, a British bank has agreed to buy key parts of Lehman Brothers, Barclay PLC will shell out $1.75 billion for chunks of the company. Lehman Brothers collapsed under the weight of bad mortgage related investments. That deal still has to be approved by the bankruptcy court.

Your money, your concern. The "Issue #1" help desk is open. Next hour our CNN money team will be answering your questions. CNN's Christine Romans is the panel's moderator. She's joining us now from New York. Christine, you've done such a great job handling all of these questions as they come in from people. Most of them coming in from us, other correspondents. But now we are able to talk to the public. And they have a lot of concerns out there.

CHRISTINE ROMANS, CNN CORRESPONDENT: That's right. Wouldn't you like to have a money coach and a certified chartered financial analyst all to yourself to answer the question specifically about your situation?

COLLINS: Yes.

ROMANS: Well, we're going to have that for you in about 54 minutes for the hour. We're going to go back and forth and talk to some folks and try to get some specific advice for people who have questions. And you can go and ask your questions to us at twitter.com\issue1cnn. Or you can e-mail me at issue1@cnn.com.

We've already been starting to get some of these questions from a young woman who is switching jobs right now and needs to move her 401(k) and really wants to know what to do because she's going to be moving all of her stuff to something new. We've got a lot of questions about, are taxpayers going to foot the bill for this? That's an interesting angle to look at. A lot of people are concerned about that. We'll explore that a little bit further.

We're going to talk about a little bit of politics and what the next president can do about this. Specifically your questions about your money and what this all means for you and what you can do about it. So hopefully giving people something that they can work on, some actionable information for your own portfolio.

COLLINS: What did we used to call that? News you can use?

ROMANS: I think so. COLLINS: All right. Christine Romans, we look forward to it. Great ideas, really want to try to help people out with all of this.

ROMANS: Sure.

COLLINS: Once again, an $85 billion bailout funded by taxpayers. That's you. How is it all going to work exactly? Our Josh Levs is figuring out what it means to you. We'll talk to him in just a moment.

Meanwhile, the nation's mortgage crisis is the focus of a hearing now on Capitol Hill. Happening right now. You see Barney Frank there. Happening this hour, the House Financial Services Committee will demand answers from the nation's mortgage industry, specifically whether foreclosures are being delayed for Americans enrolled in a new federal assistance program. You remember this, the hope for homeowners program designed to find affordable mortgages for Americans struggling to make payments on an abusive loan.

Still talking about political moves and an oil change. The House passed an energy bill last night that now clears the way for more offshore drilling. That vote, 236 to 189. Under this measure drilling would be permitted in areas between 50 and 100 miles offshore. The Senate could vote on similar legislation as early as this week.

Bloodshed in Yemen. The U.S. embassy, target of a dramatic and deadly attack. Authorities say attackers, dressed as Yemeni forces, initially opened fire outside the building in the capital of Sana'a. Then it was rocked by multiple car bombs. Ten police officers and civilians are dead. So are the six attackers. No embassy workers were killed. Yemeni officials blame Al Qaeda. Media report say a group affiliated with Al Qaeda did claim responsibility. We're following that story for you very closely.

In fact the White House condemning the attack. In a statement, a spokesman says "we offer our sincere condolences to the loved ones of the Yemenis lost in today's violence. This attack is a reminder of the continuing threat we face from violent extremists both at home and abroad."

Midwest misery. It is no walk in the park after heavy rains trigger flooding. We got some new pictures to show you, coming up.

(COMMERCIAL BREAK)

COLLINS: Well, the weekend storms are over. The misery though seems never-ending in the midwest. Just look at these pictures. For many people the problem, obviously flooding. The only way to reach some homes in Munster, Indiana, is by boat. Residents allowed back briefly facing the heartbreaking decision of what to take and what to leave behind. Disaster declared now in two northwestern counties. In Michigan, communities are submerged. A 20-year-old Michigan boy reportedly drown in a flooded ditch.

Breathing a little bit easier in Missouri, river crests now expected to be lower than earlier projections. The situation in several communities, though, still very bad.

From too much water to no electricity across much of Ohio. 1.3 million homes and businesses still don't have power. That's about half the number from Sunday. Children in Columbus and Cincinnati getting another day off from school.

CNN's Reynolds Wolf standing by in the severe weather center. Boy, you know, it seems obvious. But when you add in the loss of power, it just makes everything so much more difficult. You can't really do anything.

REYNOLDS WOLF, CNN METEOROLOGIST: No question about it. I mean, you've got the issues with that. I mean, a lot of people when you have this flooding situations, you can't turn on the faucet and get a fresh glass of water. I mean, you have all kinds of problems. You know, I think a lot of people need is a break today in terms of the rough weather. Today is going to be the day.

We do have some scattered thunderstorms off the coast, mainly off the Carolina, South Carolina and North Carolina coastline. Nothing severe at this point. Another big story we're dealing with is not in terms of rainfall, but the lack thereof in parts of the Pacific northwest, namely into Washington state, back into Oregon, even into Idaho. We've got red flags warnings that will be in effect until 11:00 p.m. this evening. Very, very low humidities with strong wind gusts. Yes, when you have these kind of conditions, you can see some fires actually spread if there were any set by any say, rain-free thunderstorms. Certainly the possibility in high elevations. That's a big worry for us. We're going to keep a sharp eye on that.

But in terms of temperatures, not too many worries at all. The Pacific Northwest again, take a look at the highs we can anticipate today from Seattle back over to safe places like Salt Lake City and back into Portland. Mainly 70s and 80s. San Francisco 59 degrees, Phoenix 98 degrees, just two degrees shy of a century mark. Kansas City with 79, 77 in Chicago, 78 in Washington, D.C. and in Atlanta, cloudy skies and 75. Not bad at all to have a day in Atlanta this time of year with temperatures only in the 70s. Let's send it back to you, Heidi.

COLLINS: You have no idea how excited I am about that.

WOLF: Oh, I know. It's great. Bring on the fall.

COLLINS: Yes. All right. Reynolds, thank you.

WOLF: Anytime.

COLLINS: "Issue #1," the economy. Hear what the candidates are saying about changing Wall Street's ways.

(COMMERCIAL BREAK)

COLLINS: All right. Let's check it out. Big board numbers. Dow Jones industrial average is down about 170 points right now on the news of some of this financial sector and obviously the latest bit of news, $85 billion federal bailout for AIG. We're going to talk much more about that as the show continues today. In fact, your money, your concerns. "Issue #1" help desk is open beginning this morning at 11:00 Eastern, our CNN money team will be answering your questions. Here is what you do. Go to twitter.com/issue1@cnn.com. You can also e-mail us at issue1@cnn.com.

To the campaign trail now. It's still the economy. Of course, John McCain is blasting Wall Street for its failures and he vows to change things on Wall Street and in Washington if elected president.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: We're not going to waste a moment in changing the way Washington does business. And we're going to start where the need for reform is greatest. In short order, we're going to put an end to the reckless conduct, corruption and unbridled greed that have caused the crisis on Wall Street. We're going to put a stop to it.

The working people of the state of Florida and this nation are the most innovative, the hardest working, best skilled, most productive, most competitive in the world. And this foundation of our economy, the American worker is strong. But it's been put at great risk by the greed and mismanagement of Wall Street and Washington.

(END VIDEO CLIP)

COLLINS: McCain vows to rid Wall Street of what he calls reckless conduct, corruption and unbridled greed. He will take that message of reform to Michigan later this morning. He's got a town hall meeting tonight in Grand Rapids.

Barack Obama talking as well. It's his primary focus at rallies in a new campaign ad as well. He's also calling for tougher regulations on Wall Street and tax cuts for the middle class. He blames the Bush administration for the latest failures on Wall Street.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: What we've seen the last few days is nothing less than the final verdict on an economic philosophy that has completely failed. And I am running for president of the United States because the dream of the American people must not be endangered anymore. It is time to put an end to the broken system in Washington that is breaking the American economy. It's time for change that makes real difference in your lives. It's time for a government that is fighting for you, not ignoring you or fighting against you.

(END VIDEO CLIP)

COLLINS: Obama heads out west this afternoon for campaign rallies in Nevada.

All the latest campaign news is right at your fingertips. Just go to cnnpolitics.com. We also have analysis from the best political team on television. It's all there at cnnpolitics.com.

The U.S. military says a roadside bomb killed four coalition troops in Afghanistan today. It happened in the eastern part of the country. An Afghan national also was killed. The military has not released the troop's nationalities. The Talibans say they carried out the attack. The group says the four were Americans.

Coming home, the former top U.S. commander in Iraq is back in the United States now. Next hour, General David Petraeus is due to visit President Bush at the White House. Over the past 5 1/2 years Petraeus has spent four of them in Iraq. Yesterday he turned over his command to General Ray Odierno. That's a change command ceremony there.

All right. Do you remember this guy? How about this tune?

UNIDENTIFIED MALE: I'm just a Bill. Yes, I'm only a bill and I'm sitting here on Capitol Hill.

COLLINS: Yes. You remember that. We're headed back to the school house rock, but not to lessons in law, instead how you hard- earned buck becomes a big-time bailout, $85 billion to be exact. Will you feel it? Class in session next.

(COMMERCIAL BREAK)

COLLINS: It is a federal financial lifeline, and it's tied to your wallet. "Issue #1" is your money. And as we've been reporting this morning, actually for several mornings now, it's our top story. The federal government is saving insurance giant AIG from possible collapse with an $85 billion loan. All of it, your tax money. But what does it really mean for you, the taxpayer.

Our Josh Levs is figuring it all out and has some really important information because Josh, I think everybody is just waiting on the edge of their chair, saying all right, when am I going to feel this? Am I going to see it in income tax or at the end of the year? Or what exactly is going to happen?

JOSH LEVS, CNN CORRESPONDENT: Yes. I might be able to make you feel a little bit better about that. But the truth is it is public money. We're all going to be aware that it is our money that is being spent out there. And this is one of the big questions we're getting today in the CNN NEWSROOM from twitter and every other way you all have a way of contacting us. You're asking where is all this bailout money coming from?

Well, in the end, it does boil down to you and me. Now, we showed you some shots before of a "School House Rock." We kind of have our own simpler version going on here.

Let's start with some graphics. Here is the basic, you work, you pay taxes. See, that's you. There you are. The IRS collects that money from you and then passes it along to the Federal Treasury. Let's just take this so you can see the pretty big pictures that we have. This is where it gets a little complicated. So you've got the IRS taking the money there. Then the IRS passes it along to the Federal Treasury. Let's go to the next picture there. And this is the key - let's look at that for a second.

The Treasury does something - see the little pieces of paper that are coming out of the Treasury there?

COLLINS: I see that.

LEVS: They issue securities. And these are the key. Let's go to the next graphic. Because what happens is the Federal Reserve buys up those securities and that right there is where the Federal Reserve gets the majority of its operating budget from those securities. So you have the Treasury security, the Federal Reserve making its money, having it's operating budget based on its purchases of those securities. There's a huge role in funding this operation.

Now, when a company is struggling and the Federal Reserve decides, you know what, we need to come along. And we need to prop up this company by loaning it tons and tons of money, which is what we're seeing today. That is your money. It's taxpayer money. Because the Reserve is part of the federal government but you see all those arrows that are going both ways there. This is really important.

Our CNN money folks and the Federal Reserve say you really shouldn't expect taxes to go up because of it. In fact, ideally, the Federal Reserve should actually make money off of this. Because the company is paying interest on that huge loan that you're seeing.

COLLINS: A lot of interest too.

LEVS: So, what if the deal falls apart, right? What if the deal falls apart? Then this is the question - or what if the company shuts down? The Federal Reserve says it has collateral. It could basically come to own things that the business owned in the first place. Again, we're just talking ideally here. (INAUDIBLE) should be protected that way. But there's always some risk that the federal government can ultimately lose some taxpayer money and it is our money, this taxpayer money because it's public money in that way. Not everyone is comfortable having their hard earned money going into any part of this bailout of a trillion dollar company.

COLLINS: Well, of course. And that has always been the question about regulation and how the government should get involved with private companies or not. But this one is so big, I think the important thing that you're saying though is that is not new money that's being generated.

LEVS: Right.

COLLINS: This is not, you know, money that's going to be noticeable right at the moment as long as the deal is good.

LEVS: It should not immediately cause you to pay any more taxes. It should not immediately be money you are paying today in taxes. It shouldn't be any of that. Ideally, if this deal falls through, the Feds like, hey, we're giving you a ton of money but we're going to make a ton of money off of it. And the Fed comes out fine. The problem is obviously what if something happens, what if the company falls apart, the collateral cannot cover it, then what do you do? And that's the concern that a lot of people have because ultimately it is federal money. It is our money. It is the government's money that makes it taxpayer money. We're just all hoping that obviously it doesn't mean that taxpayer have to pay more.

COLLINS: Yes. Obviously. So they have two years to pay this back. 11 percent I think -

LEVS: Right, exactly.

COLLINS: That's why they'll make money, the Federal Reserve.

LEVS: That's why ideally they will make money.

COLLINS: I'm being optimistic.

LEVS: You want me to be optimistic and when this whole thing is - optimistic in a way. Plus we have pretty pictures for you. But, you know what I'm saying. Besides, you have that -- if it follows through, as the government says it will, then there should be money made off of this whole thing. The concern obviously would be what if something falls apart, are we losing taxpayer money off of this? And that's something no one wants to see.

COLLINS: All right. Very good.

Josh, thanks for that. We sure appreciate it.

Your money, your concerns, the "Issue #1" help desk is open beginning this morning at 11:00 a.m., about 30 minutes from now. Our CNNMoney team will be answering your questions. Just go to twitter.com/issue1@CNN. Kind of a long address, but it's there on your screen as well. You can also e-mail us at issue1@CNN.com.

President Bush got a firsthand look at some of the damage from Hurricane Ike. His three-hour trip yesterday included fly-overs of Galveston and Houston. The president told evacuees to wait until local authorities say it's safe to go back home. The president also calling on all Americans to donate to relief agencies.

It's a place that is usually filled with the sounds of kids laughing and having a lot of fun. And now it's eerily silent after Hurricane Ike blasted through.

Our Susan Roesgen joining us now from Kemah, Texas with what's left behind of a local landmark there.

This is an amusement park, Susan?

SUSAN ROESGEN, CNN CORRESPONDENT: It's an amusement park, Heidi. It's also part of a 50-acre entertainment complex that's got eight hotels, restaurants, hotel, shops, everything out here. It's a big money-maker. Kemah is about 45 minutes away from Houston proper. This is where lots of tourists come. It's one of the most popular tourist attractions in the state of Texas. This is one of the rides that got slammed pretty hard. This amusement park is such a big draw, but Hurricane Ike was the scariest ride of all.

(BEGIN VIDEOTAPE)

ROESGEN (voice-over): When Hurricane Ike came roaring ashore on the Texas coast, the Pharaoh's Fury was not enough to stop a 17-foot wall of water.

UNIDENTIFIED MALE: That's where she landed. She's --

ROESGEN: The Pharaoh's head landed several yards away.

Tim Anderson, the boardwalk's general manager, grew up in this area. He wasn't prepared for what Ike did to the boardwalk's big draw, the amusement park. A child's playground now looks more like a child's nightmare.

(on camera): Some of the damage here you can't even see. Where I'm standing used to be the carousel. It's gone and the horses wound up as far as a half mile away.

UNIDENTIFIED MALE: I was totally flabbergasted.

UNIDENTIFIED MALE: I was feeling pretty good when I looked at this ride at first. But then when I walked around on the other side, it doesn't look nearly as good.

ROESGEN (voice-over): The little train that carries children and parents all around the park can't run on broken rails, and no way to ride a ferris wheel when the cars are left dangling upside down. But maybe the most eerie thing of all is that the entire 50-acre park of rides and restaurants and shops is almost completely silent.

TIM ANDERSON, KEMAH BOARDWALK: To have no kids here laughing, no rides running, no restaurants in operation. The restaurants have a whole different sound and fun atmosphere in and of themselves is pretty strange.

ROESGEN: The town of Kemah has just 2,300 residents, but an average of 3 million people come to visit this park each year. So the entire town's economy has taken a huge hit from the hurricane, the kind of wild thrill no amusement park could match.

ANDERSON: I've always liked rides, although I've never wanted to ride out a hurricane.

(END VIDEOTAPE)

ROESGEN: Now usually this entire boardwalk area with all the shops and the restaurants and the rides is open 363 days a year, Heidi. They only close Thanksgiving and Christmas. The good news, sort of, in all this is that the high season is over. It runs between Memorial Day and Labor Day. But they started rebuilding, started cleaning up the day after the storm. So they're planning to get this pretty much going again within a month or a month and a half -- Heidi.

COLLINS: So where do they go from here? As we look at that devastation around you, obviously there's so much more when we're talking about people's homes, and their livelihoods and all of that. What's the next step for everybody there?

ROESGEN: Well you know, again, Kemah -- this is Kemah -- this is the town of Kemah, with only 2,300 people, but this huge draw that brings in 3 million people. The CEO, I hear, says that he actually wants to put more out here. He wants to reinvest.

I asked him what was worse, the big stock market drop this week, or Hurricane Ike? He said Hurricane Ike. He really wants to rebuild. He's even thinking (ph) that our suggestion that perhaps he should name a new ride out here Hurricane Ike.

COLLINS: Wow.

ROESGEN: So they're going to go forward -- just kind of rebuild and go on.

COLLINS: Sure. All right. Well we wish everybody there, and all across the area that was hit so hard by Hurricane Ike, the best of luck in trying to get things back to normal, or as close to it as possible.

Susan Roesgen from Kemah, Texas, this morning -- thank you, Susan.

Many national and local organizations are stepping in to help those affected by hurricanes. If you need their services, or would like to get involved, you can visit our Impact Your World page where you can find more details on how to do that. It's at CNN.com/impact.

Investigators say the engineer of a commuter train did not hit his brakes before last week's deadly crash. L.A.'s Metrolink resumed service yesterday along the tracks where the commuter train collided with a freight train during afternoon rush hour on Friday. The NTSB says the freight train did apply its brakes. Investigators are collecting data now from recorders aboard each train.

They say the train operators had only four to five seconds to react before impact. Twenty-five people were killed in the crash, 130 hurt.

Well, here comes the bus. An incredible scene outside a home in Charlotte, North Carolina yesterday. Police say one child was aboard the bus when it crashed into that house. The student and school bus driver were taken to a local hospital as a precaution. As for the homeowner, she'll be looking for temporary housing while repairs are under way at her home. No immediate word on what caused the crash.

This is day three of testimony in the O.J. Simpson kidnap/robbery trial. Taped testimony from an FBI audio expert expected to be on tap. Yesterday, the jury saw surveillance video of Simpson and five other men with him coming and going from a Las Vegas hotel. That's where he allegedly got into a confrontation with two sports memorabilia dealers last September. You can watch the O.J. trial online at CNN.com/live, or on our sister station, Headline News, all this week beginning at noon Eastern.

Don't blame him. A gas station owner says he's not the cause of your high pump prices. His side of the story next.

(COMMERCIAL BREAK)

COLLINS: Many people said it was too big to fail. It looks like some of them were right. Susan Lisovicz is on the floor of the New York Stock Exchange with more on the government bailout of AIG and how that is playing out on Wall Street.

Wow, Susan, we're now down about 243 points.

LISOVICZ: Yes, I'm in the booth because it's been so busy. There has been so much information, I couldn't even get down to the floor.

These are just unprecedented times that we live in. The government is basically loaning AIG $85 billion of taxpayer money, money that it refused to help out Lehman just a few days ago. And then of course, this coming 10 days after it bailed out the enormous mortgage players, Fannie Mae and Freddie Mac.

What was it that made AIG so different? Well, this giant insurance company plays a massive role in the global economy. Analysts say the domino effect could have been frightening because so many banks and other institutions around the globe hold securities issued by AIG's collapse, could have been catastrophic and triggered a whole new round of financial disasters. So we are just seeing the outcome of it play out on Wall Street today.

There's still a lot of questions about AIG. It's borrowing money at a very high rate. It's under a loss of pressure to sell its assets. And AIG shares continue to crater; they're down 44 percent right now, trading at $2.00 --

COLLINS: Wow.

LISOVICZ: -- $2.00 stock for this enormous company who operates in 130 companies, a trillion dollars worth of assets.

COLLINS: Well there you go. Those are the branches from AIG that people just may really, until now, have not understood how big and how many different businesses it touches. Obviously Wall Street still pretty uneasy considering everything that has happened this week.

At least one bank, though, trying to keep investors calm, right? Let's talk about that.

LISOVICZ: Yes, well Morgan Stanley reported its earnings a day early just to try to ease the jitters here on the Street. They were better than expected. The company has said it's determined to stand on its own. The fact that it had to make that statement is very telling since we have seen Bear Stearns and Lehman and Merrill Lynch no longer standing on their own or completely fail. Its shares, despite the fact that they're better than expected, down 17 percent.

And you know, there's other -- there's other news that I have to tell you about as well, just very quickly. The Fed has been so busy with some of the extraordinary measures it's taken this year that the Treasury Department said that it has announced an initiation of a temporary supplementary program which will consist of a series of auctions that will help the Fed do all of the things, all the initiatives, that it's been taking -- basically to help shore up the Fed's own balance sheet. So it's going to -- the Treasury is now going to assist the Federal Reserve. That statement came out in the last half hour.

And also, we have new from the Securities and Exchange Commission that it's tightening a type of selling, short selling, that it believes has contributed to these debt spirals that we saw with Bear Stearns' stock, that we've seen with Lehman stock and now we see unfolding with AIG stock.

So the news is fast and furious and right now the way it's playing out is with a broad base selloff. The Dow, the Nasdaq and the S&P 500, each down about 2.5 percent, and yes, there are triple digit losses for the blue chips right now, Heidi.

COLLINS: All right. We're watching it as closely as possible with you. Susan Lisovicz, thanks so much.

LISOVICZ: You're welcome.

COLLINS: You can follow your fortunes at CNNMoney.com. We've got all the day's market news and numbers, expert analysis and much more, so make sure you check that out.

And your money, your concerns, the "Issue #1" help desk is open. You should really think about taking advantage of this. Beginning this morning at 11:00 Eastern our CNNMoney team will be answering your questions. All you have to do is go to twitter.com/issue1@CNN. You can also e-mail us at issue1@CNN.com.

You may or may not have noticed, if you filled up this morning, gas prices are up for the eighth straight day. AAA says the nationwide average rose one-tenth of a penny over night. Eleven states, though, now paying more than $4.00 a gallon.

As we said, gas prices back on the rise. Your wallet slammed again after Hurricane Ike. But, one Illinois gas station owner says don't blame him. He says he's not making the big bucks.

(BEGIN VIDEO CLIP)

DON SCHOMAKER, GAS STATION OWNER: Everybody thinks it's our fault, like we're doing the price gouging. That's not the case. If you keep your price according to the street, you'll go broke because the guy down the street might have got a load yesterday for 90 cents less than you got a load today.

(END VIDEO CLIP)

COLLINS: An industry analyst says prices are higher in the Midwest because two pipelines supplying that region have been shut down.

Barack Obama, a native son of Hawaii. Could his roots flourish in the desert, thousands of miles away?

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COLLINS: Well we've all heard about the battleground states in this year's presidential election. Hawaii not among the swing states, yet its voters could play a role now in another tight contest.

CNN's Chris Lawrence explains.

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CHRIS LAWRENCE, CNN CORRESPONDENT: Nearly 12,000 Hawaiian residents have traded its beautiful beaches for jobs in Nevada's bone- dry desert during the past decade, a lot when you consider Nevada has only 1.3 million registered voters.

ED HASEGAWA, OBAMA SUPPORTER: I would say a few thousands votes in Nevada would make a difference.

LAWRENCE: We traveled to Hawaii, where Ed Hasegawa and a team of Barack Obama supporters are dedicated to defeating John McCain in Nevada. Obama's Hawaii network called 3,000 Nevada residents during Nevada's caucuses, where he narrowly won more delegates. Now they're ramping up for the general election.

CHARLES HERRING, NEVADA RESIDENT: I personally have been getting a lot of calls for Obama, vote for Obama, contact your friends, contact your family.

LAWRENCE: Hasegawa thinks Hawaii is a safe win for Obama, so he's recruiting former residents who have moved to the swing state.

HASEGAWA: I think we could be a real weapon (ph) in this campaign.

LAWRENCE: But in Hawaii's Republican party headquarters, the chairman says Democrats need to focus on local issues, like tax relief, not Nevada.

WILLES LEE, HAWAII REPUBLICAN PARTY: It's presumptuous certainly.

LAWRENCE: Willes Lee has no plans to start a similar campaign targeting Republicans in Nevada.

LEE: They'll rally around. They understand John McCain is the one who needs to lead the country. They'll come out because this is an important election, not because they're being called by friends in Hawaii.

LAWRENCE: While some say there is a sense of family among people from Hawaii --

UNIDENTIFIED MALE: You trust, it's loyal, loyalty.

LAWRENCE: -- others won't be influenced by a call from the islands.

(on camera): Would that play into who you're going to vote for?

PHYLLIS LEONAHI, NEVADA RESIDENT: Not really, because I'll make my own decision.

LAWRENCE (voice-over): Hasegawa says even a few votes could pay big dividends for Obama.

HASEGAWA: If we could get 3,000 or 4,000 of them, it may be a win.

(END VIDEOTAPE)

COLLINS: Allies of Alaska governor, Sarah Palin, want an investigation into the firing of her public service commissioner stopped. They are calling the probe a -- quote -- "McCarthyistic inquisition." And they filed two lawsuits asking a judge to prevent lawmakers from investigating the Republican vice presidential nominee.

Palin is battling allegations she and her advisers pressured Alaska's public service commissioner to fire a state trooper. That officer was going through a bitter custody battle with Palin's sister.

Check out our political ticker for all the latest campaign news. Just log on to CNNPolitics.com, your source for all things political.

Now, the long and short of it. What brought this off couple together? Here's a hint, it's not a date.

(COMMERCIAL BREAK)

COLLINS: Quickly, we want to take another look at the big board. Do Jones Industrial Averages is now down 234 points. You can see it there for yourself. S&P also down and Nasdaq also down. You can see the little numbers on the right hand side of your screen where the time is you will soon see S&P and Nasdaq. So keep your eye on all of that.

Meanwhile, your money, your concerns, the "Issue #1" help desk is setting up, right as we speak, all kinds of flurry in our New York studios. You see Christine Romans there along with our panel. They're getting ready to twitter and do all of that. You see it up on the big board there. And the whole point of this, it's pretty cool, beginning at 11:00, so about five minutes from now, that money team will be answering your questions.

Just go to twitter.com/issue1@CNN.com. You can also e-mail us at issue1@CNN.com. We know you have a lot of questions and we want to get them answered for you.

To this story now, China says a third baby has died from contaminated formula. Health officials now say the formula has made more than 6,000 babies sick. It's a huge spike. This has been a nightmare for parents, as you can imagine, as CNN's John Vause explains.

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JOHN VAUSE, CNN CORRESPONDENT: From a scandal to a national crisis. Around China, anxious parents are now taking their parents to hospitals for medical checks, worried they may have developed health problems from tainted baby milk powder, which in some cases has been deadly.

"We have no idea what to do," says this woman. "My baby needs milk. I'm worried we won't find a solution."

And with thousands of children already made sick, the government is preparing for much worse to come. Hospitals have been told to set up dedicated units and prepare beds, medical equipment and personnel, says the country's health minister. Government tests now show 22 brands of infant formula, not just one, have been spiked with the industrial chemical, melamine, normally used to make plastic, but when mixed with milk, which may have been watered down, it can produce artificially high readings of protein, allowing it to pass inspection.

The highest concentrations of melamine were found in products made by San Lu, China's biggest maker of baby milk powder and the first to be linked to the scandal. Wednesday, state media reported the company's president was detained by police but no other details were given

(on camera): Parents began reporting sick children back in March, the first death was in May. But it wasn't until last month when anyone started looking for melamine. Officials say it took so long to make the connection because it's illegal to mix the industrial chemical with food products.

(voice-over): "After this incident, we're considering including a test for melamine as part of a national standard," says this official.

In Hong Kong, melamine was found in Chinese made frozen yogurt and recalls have been issued in five countries, Bangladesh, Myanmar, Burundi, Gabon and Yemen, which import infant formula from China. Beijing has now ordered urgent inspections of every dairy producer in the country and all dairy products, milk, butter, yogurt, cream, are being tested for melamine to try and reassure consumers that the food they eat won't kill them.

John Vause, CNN, Beijing.

(END VIDEOTAPE)

COLLINS: In London, double takes, and a study in contrast. First, the world's smallest man. He's just a tad shy of 2 1/2 feet tall. There he is. Towering over him, the woman credited with the longest legs in the world. Both hold their titles in the Guinness Book of World Records. It brought them together to launch the 2009 edition. And that is picture to remember.

I'm Heidi Collins. Join me again tomorrow morning beginning at 9:00 Eastern.

For now, the CNN NEWSROOM continues with Don Lemon.