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What Next For AIG?; Interview With Former Labor Secretary Robert Reich

Aired September 17, 2008 - 15:00   ET

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

(BEGIN VIDEOTAPE)
RICK SANCHEZ, CNN ANCHOR (voice-over): Coming at you now, AIG gets too big to fail. Think about that, too big to fail. That means you and I have to rescue them. But why were they allowed to get so big? Congress says they will investigate.

REP. NANCY PELOSI (D-CA), SPEAKER OF THE HOUSE: This is one glaring example of what bad managers the Bush administration have been of our economy.

SANCHEZ: Obama's solution, McCain's solution. Somebody better come up with one quick, because investors are not buying this one. It is down. McCain's own economic adviser says, McCain could not run a company, and neither could Obama. You will hear it for yourself.

Robert Reich, who served as Clinton's labor secretary, joins us to answer your questions on Twitter, on camera, because we are interactive.

And amid the economic news, terrorists attack another American embassy -- all this direct to you, right now.

(END VIDEOTAPE)

SANCHEZ: And hello again, everybody. I'm Rick Sanchez. We are coming to you from New York. We are going to be counting down the minutes. We are, in fact, going to be able to put up a clock to show you what the whole world wants to know, how this thing is going to end up today.

And thousands of you have been contacting us right here on Twitter.com/ricksanchezCNN, MySpace, Facebook. We hear you. We have been reading your responses. We promise that we're going to be getting to your responses and your questions and your comments throughout this hour. And there are a bevy of them.

Here is what we can say right now. This is definitive -- $85 billion, $85 billion has not stopped the bleeding. That is not good. Let me show you what I mean when I say this. Wall Street's reaction to the bailout, there it is on the board, the bailout of AIG, it seems to be almost these words are being uttered by investors all over the world. It is not enough. It is not going to work.

Well, here in New York, we are an hour away from the closing bell, and we may be looking at a roller-coaster ride from here on in. All throughout the hour, we are going to take you through how this develops, and we are going to take you through it as the roller- coaster ride continues.

All right. You see the number right there. The Dow Jones industrial average is in fact down right now. It is about 184. It has been worse throughout the day. The question is, will it do what it did Monday and all of a sudden, in the last 45 minutes, shoot down even more? Here is what one trader has said to one of our reporters -- quote -- "People right now are scared to death."

All right. We are going to hit the story as hard as we can, so you get all the latest information and get your questions answered.

We are also going to be hitting Barack Obama. He is going to be speaking. You saw some of his comments there earlier. Every time he makes a comment or John McCain regarding what is going on today with the economy, we are going to turn it around right away and let you hear it.

Also, we are going to talk with some of the smartest people out there, including Robert Reich. He was President Clinton's secretary of labor.

But before we plow through this, though, there's two things we want you to know right up front. This week alone, global markets have lost nearly $3 trillion. This is important, T., trillion, $3 trillion.

Number two, treasury bond yields today hit a 54-year low. Look, you know what that means? What it means is that people are looking for a port in the storm. Investors are looking for or maybe groping might be a better word for a safe place to put their money. That includes all of us.

Let's get right to the market itself. Susan Lisovicz is standing by.

Susan, earlier, it was down into the 300s, I believe. Now it is 160, 180-something. What is the market reaction telling us about the AIG deal?

SUSAN LISOVICZ, CNN CORRESPONDENT: Well, you know, AIG's work is not over yet. It is as simple as that, Rick.

And I think it also says, who is next? AIG is borrowing money from the government at a very high interest rate, and it is under a lot of pressure to sell its assets quickly. So, AIG continues to melt away, its shares eroding another 40 percent. It is a $2 stock right now. This is a stock that was trading at $70, enormous pressure on the last two stand-alone investment banks.

Morgan Stanley reported better-than-expected earnings. It made $1.5 billion in the last three months, in its last quarter. But guess what? It is losing more than a quarter of its value today. Goldman Sachs, considered a real rock star on Wall Street, because among other things it really was not as exposed to the subprime mortgage meltdown, has held up pretty well. It is down 17 percent, so a lot of concern about that.

But the bottom line is here that, yes, maybe somebody have said people are scared to death, but you have to really try to, you know, try to remember that the last thing you want to do as an investor is to let your emotions run away with you. If anything, this is the time of opportunity.

A money manager, a veteran money manager told me earlier today, there is an old adage in bear markets. Don't just do something. Stand there. Don't let your money -- money decisions, your financial decisions be completely fueled on emotion.

These are scary times, but, you know, this is kind of excess that is being shaken out of the system, the excess didn't happen overnight. What happened in the housing market and the credit markets didn't happen overnight. It is not going to disappear overnight. Things are unfolding pretty quickly and it can be scary, but right now, we have pared half our losses on the day. The Dow was down about 400 points at its low, right now down 160, still severe, but not as bad.

And, yes, this is the witching hour. It could change rapidly, Rick, so let's just hang in there together.

SANCHEZ: Yes, that is what it did Monday. And I'm so happy -- yes, you are right, about 55 minutes left in this thing -- so happy that we have you there, Susan. We will be checking back with you throughout the hour to see how this thing fluctuates.

By the way, let's go to you now. Yes, you. Let's go to our Twitter.com/ricksanchezCNN. This is one of the big concerns. Let's put it up the big board.

This is Dwayne. And look what he says. "In a true free market system, shouldn't we let those businesses that are failing fail, so the market can improve?"

This has been one of the common themes that people are asking today. And part of it is because this is your money that is being used to rescue these companies. And many of you have been upset. So I am going to be sharing some of that insight that you have been sharing and some of that anger frankly that you have been sharing with us throughout the course of the next 55 minutes or so.

It is not just here, by the way. Let me share something else with you. Markets, as I am looking now, markets in Europe and in Asia are down today as a result of what is going on in the United States. In fact, take a look at this. Financial panic in Russia has prompted officials to halt trading at the main stock exchange in Moscow. The exchange had suffered its steepest one-day loss in 10 years as a result of what is going on with an American insurance company. Think about that.

All right. This is what I want to do right now. I want to bring in somebody who was one of President Clinton's economic gurus back when things were pretty darn good economically, certainly comparably speaking, right? Professor Robert Reich joins us now from Berkeley, California. He was secretary of labor in the Clinton administration, as you might recall. He blogs daily, good blogs, by the way. And his latest book is called Supercapitalism."

Mr. Secretary, thank you, sir, for being with us on this day.

Americans want to know this from someone like you who has been there in the trenches. Do you see any light at this point at the end of the tunnel as you look at the things that have transpired over the last 48 hours, sir?

ROBERT REICH, FORMER LABOR SECRETARY: Hello, Rick.

Of course there is light at the end of tunnel. The question is how long does it take us to get through this tunnel and where is -- to change the metaphor a little bit, where is the bottom?

We are seeing a crisis of confidence with regard to Wall Street of a sort that we have not seen since the 1930s. Now, there will be a bottom. There will be light at the end of this tunnel, but will it be six months from now? Will it be a year from now? Will it be two years from now? We just don't know. Nobody knows.

SANCHEZ: Well, look, we can't get out of this until we as a nation really understand how we got into it.

Is this -- is this still the tumultuous result of people getting loans who frankly had no business getting these loans? And I guess the question that Americans would want to know is, who in the hell allowed this to happen?

REICH: Well, the subprime mortgage crisis, Rick, was the trigger for all of this, but it was not really the underlying problem. The underlying problem is that, for years, there has been a kind of anything-goes attitude on Wall Street. As long as they were making money, Wall Street traders and executives would be dealing in exotic instruments, derivatives on derivatives, swaps. They didn't even know the value of most of these things. There was no regulation to speak of.

And, as a result, everybody really enjoyed the fruits of gambling. The subprime crisis triggered a kind of a well, wait a minute, maybe we ought to know what these pieces of paper are actually worth moments, and that in turn led to a kind of, if we are really mixing metaphors, a kind of emperor's new clothes.

People started to say, well, wait a minute, maybe none of these pieces of paper can be trusted, because who knows what they are worth.

SANCHEZ: Well, and I guess what it comes down to is, who was minding the store? I want to talk about that. And there's something else I want to talk to you about.

I have read a lot of Ronald Reagan's theories, and one of the things that Ronald Reagan's theories was, he said the reason communism doesn't work is, it takes away your right to fail.

Are we today in this country taking away these companies' right to fail? And is that a capitalistic way of succeeding? It reminds me, sir, of the country I was born in, Cuba. So, I want to take that up with you, because this is important. I don't think we can move forward until we get some of this business out of the way and we, as Americans, start to understand how we got in this situation, so we don't go there again.

Stand by, Robert Reich, coming back to us in just a minute. Let's take a quick break and we will continue the conversation.

(COMMERCIAL BREAK)

SANCHEZ: Welcome back.

Here is the big news. First of all, let's check the market. As you can see, it's down 172 points. Investors seem to be sending a signal they are not crazy about this deal between the government and AIG, where the government is going to give AIG a bridge loan of $85 billion.

It is a rescue, but apparently not a bailout. And we have got people who are responding to this all over the country, some 15,000, 16,000 people who are Twittering with us as we are doing this newscast.

Michael in the control room, if we can, go to Barkway. This is a question, they say, for Reich, they say, for Secretary Reich. "If government effectively controls 80 percent of AIG now, isn't this a government-run insurance?"

You know, and, Mr. Secretary, this goes back to the question I had raised just before we went to the break. Ronald Reagan said communism takes away your right to fail. Why is the United States of America essentially rewarding failure in this case, and is this a good way to go?

REICH: Rick, we now have something that you might call socialized capitalism. All of the upside gains go to people like financial executives and very wealthy investors, most of them. The downside risks fall on you and me and most other taxpayers.

That does not work over the long term. That is not the way to go. As a short-term measure, I think the policy-makers were found -- they found themselves in a terrible dilemma over the last couple of weeks. And, ultimately, they said no to Lehman. They said yes to AIG. Why?

Because, on the one hand, if they don't bail out something like AIG, the chances are the market would not plunge 100 or 200 to 300. We might have a world market panic, because there are so many investors and lenders into AIG, and AIG has so many connections to the rest of the financial world, that letting it go down would be chaotic.

On the other hand, you are right and I am right. This is not the way to go, because you create what economists call moral hazard. That is, the next time somebody makes a risky bet, if you are a big financial executive, you say, well, who cares? The government will be behind me.

Over the long term -- and I mean like over the next couple of weeks, because that is really the long term -- we got have to have regulations that do three things, number one, full disclosure. One of the pieces of crisis of confidence on Wall Street is, the people don't know what these pieces of paper are worth. We have got to have every institution to relay, fess up to what their balance sheets are worth.

Number two, capital requirements. These big investment banks, they have been getting away with a lot of stuff because, unlike commercial banks, they don't have to keep a certain amount of capital in their balance sheet if something goes wrong.

And, number three, conflicts of interests. We have got credit rating agencies now that are issuing their credit rating judgments on bonds and on stocks that are paid -- the institutions pay the credit rating agencies. There all sorts of conflicts of interests. We have got to do these three things.

SANCHEZ: What I hear you saying is -- and I respect your opinion -- is that this company was too big to fail, that, effectively, what they did is what they had to do.

What I also hear you saying, though, is that oversight is the key. Has there been -- and I know that you are a Democrat and you tend to be leaning toward Barack Obama -- but stripping away partisanship right now, because we are all in this together as Americans, has there been a lack of oversight in the last 10 years in this country, when it comes to business, even perhaps during the administration you were a part of with Bill Clinton?

REICH: Yes, complete lack of oversight. In fact, the watch word was deregulation. The assumption was, you could leave Wall Street on its own. Everybody who is an investor, the big institutional investors, were smart enough to take care of themselves. Everybody could self-regulate in most of these markets.

Well, we are now paying the piper. We're reaping the whirlwind for that false notion that deregulation was the way to go. Alan Greenspan, in 2003, 2004, he let interest rates, short-term interest rates, go down to 1 percent. Well, that was -- in inflation-adjusted terms, that is negative interest rates, which meant everybody who had any money at all, big institutions, were pushing that money out of the door to anybody who could stand up straight, practically.

And there was no oversight. Greenspan said repeatedly, well, I don't want more regulation. I don't want more oversight.

The current administration, the George W. Bush administration, didn't do any oversight, actually fewer investigators at the Securities and Exchange Commission than there were in 2000. Well, you are begging for trouble.

SANCHEZ: Yes, yes. We learn our lessons from this.

Former Secretary of Labor Robert Reich, it has really been a pleasure to hear you out on this. There's a lot of people with some real smart opinions out there. We're going to get to them, as many as we can, but certainly you are there at the top of those.

REICH: Thanks, Rick.

SANCHEZ: Secretary Reich, thanks for your time, sir.

The bailout bill for rescuing AIG, you have heard the number all day long, right? It is about $85 billion. Now, before you think that is just another meaningless enormous government dollar amount, let me show you just how heavy-duty that number really is, all right?

I am going to show you a map. It is the continent of Africa. It is 53 countries. Now, look at this. Every country in orange has an annual gross domestic product not even close, not even close to $85 billion.

That means basically this, America, that you could buy any one or more of these countries with the money that the U.S. is now lending to this one company, AIG. And that is not just a developing-nations thing either. Take a look at this, Europe. Now, light it up, same thing with all the countries that you see there in red. Those entire countries in one year do less business than $85 billion.

Now, we got this data, by the way, from "CIA World Factbook," in case you want to fact-check us on this.

And here is one more way to look at this $85 billion pill. The chairman of the Congressional Economic Committee said in June that the United States spends $430 million each day fighting the war in Iraq. At that rate, $85 billion would pay for almost 200 days -- 200 days of the war we could pay for with that money.

You mad yet? You should be. "Forbes" magazine editor Bob Lenzner talked to some sources inside AIG. In fact, he is one of the few who has had any contact with these people. They are pretty much being numb about this -- mum, I should say. He joins us next with their take on this buyout and what is going on.

Before we do anything else, let's get one quick check of the market before we go to break just to see how investors are riding this thing, because we're going to checking it as we go all the way into the 4:00 hour. Down some more, 194. Hopefully, it will stay under 200.

Stay with us. A lot of people to talk to, a lot of news to get to, the political implications and much more, as we continue.

I'm Rick Sanchez.

(COMMERCIAL BREAK)

SANCHEZ: No question, thousands of you out there, MySpace, Facebook, and -- all right. That is how you can reach us. I know many of you out there have been trying to. And you can reach us at Twitter.com/ricksanchezCNN and MySpace, Facebook.

We know there are thousands of you who have been trying to reach us. We are going to be responding to your comments.

In fact, let's go to a couple of those now.

Michael in the control room, go ahead and put one of the latest ones that we just got. This is from MySpace, I believe? And MySpace -- this is a typical response that we have been getting from Jonny B. throughout the day. "This is so evident that our country is going down the toilet. We're bailing out everyone out of debt, $100 billion here, a trillion there for Iraq. Can anyone see that the powers that can -- have sold our country so that whoever gets power next will be dependent on the people that put them there in the first place?"

Let's go over to Twitter now. I think we have one there. This is interesting, because I want you to know that this is what we are working on and we are not going to let you down on this.

I think you can go down, Michael, to Barkway. And Barkway poses the following question. She is a journalism teacher. She's watching our newscast. She says to us the following, if you can't see it there: "If government effectively controls 80 percent."

And writer Carry (ph). Pardon me. I misspoke. "Yes, what does this mean for the average American? Make the abstract tangible. My journalism students want to know that."

That is a great, great point. And that's what we're going to be trying to do here. We are going to be trying to let you understand how this that is going on today in the news is going to actually affect you. That is why we have a panel coming up that is going to try and do that for you about insurance and about all your other questions.

By the way, here is another thing that we can tell you about the bailout of AIG. Under the terms of his contract, AIG's chief executive may be up for an exit package worth nearly $9 million. He has only had the job since June.

More important, heading -- where is AIG headed right now? Let's remember this is the company too big to fail.

Joining us from New York, a man very close to the situation, Bob Lenzner, national editor for "Forbes" magazine.

Mr. Lenzner, thanks so much for being with us.

BOB LENZNER, NATIONAL EDITOR, "FORBES": Not at all.

SANCHEZ: Look, since, this is my money, people would be saying watching this newscast right now, that is being handed out, how is this deal going to work? It is not a buyout. It is not really a bailout. It is a bridge loan, right? LENZNER: Right. This is the way it's going to work.

By the way, my sources are not inside AIG, but they're in Wall Street close to the situation. I just want to make that explicitly clear.

SANCHEZ: Thank you.

LENZNER: The deal is this, that the $85 billion -- the Federal Reserve is going to be paid 11 percent interest right now on the $85 billion.

Then there are already people milling around that want to buy parts of the operations of AIG. AIG owns very valuable insurance companies in China, Japan, Taiwan, Korea, India, and the United States. They are going to start selling off those properties. I would expect maybe Warren Buffett would be interested in buying some of them. They are very, very profitable.

And, as they sell off properties and get the money, they have to pay the money back to Federal Reserve Bank. Now, I want to add one more thing that I was told this morning. This deal may not go through. I, myself, think it will go through, but there are people very angry about this deal, because there are many people who think that the assets might be worth more than $85 billion.

SANCHEZ: People like who? People where? Who are you talking about?

LENZNER: AIG -- well, for one thing, Mr. Greenberg, the former chairman of AIG, controls 12 percent of AIG. They need a shareholder vote of a simple majority of AIG shareholders in order to approve this transaction with the Fed. It is not a done deal until the shareholders speak.

And some 80 percent of AIG shares are not owned by the public, but they're owned by major mutual...

(CROSSTALK)

SANCHEZ: OK. I am totally confused by what you are saying, not that you are doing a bad job of explaining it. You are telling me people within AIG don't want this bridge loan?

LENZNER: No. I'm saying that there are some shareholders that object, that may object to the transaction, and may think they can do better. I don't think that's going to happen, but that is the talk around Wall Street.

SANCHEZ: But where in the world would they do better? This company is on the brink of collapse, isn't it?

LENZNER: That is true.

And going on what Reich said -- I just want to make this point, too -- Wall Street compensation is the crux of this matter, so far as AIG is concerned, because the gentleman who was running the financial products wing of AIG was allowed to build up $400 billion of these very toxic, very hard-to-understand derivative contracts, which have now backfired and have caused this to happen.

He was being paid a portion of the profits that he made each year in a private deal that he worked out with Mr. Greenberg. So, he was allowed to run on his own, and build up a business that amounted to 40 percent of AIG's actual activities. You could see how dangerous that would be if things turned against you.

Now, he was forced out of the company in April, but he made a huge fortune for himself and for AIG, and, by doing this, has caused this collapse of AIG.

SANCHEZ: Well, this is what we're going to be looking at. Thanks so much for that explanation. I mean, it gives us a better understanding of what is going on. And it does not make us any less content about what we see as Americans.

LENZNER: You have to look at the compensation system in Wall Street to see the pressure on these people do business that they don't completely understand.

SANCHEZ: And it needs to change. And it needs to change.

LENZNER: Right. It is going to change because there's going to be regulations on the amount of money you can borrow to do these things. There is going to be I think a prohibition against doing a lot of stuff off the balance sheet that is not regulated by any margin requirements.

SANCHEZ: Well, I will tell you, I will tell you, it is frustrating for me, as I am sure it is frustrating for people who are sitting at home who may not be as smart as you or so many others.

(CROSSTALK)

LENZNER: No, I understand.

Listen, there's nobody -- the only reason I understand part of this is because I have been working on writing about it. But most people -- and there are still parts of it that I don't understand. I don't understand why AIG didn't realize this was happening quite some time ago and do something about it.

SANCHEZ: Thank you. And that is what many people are saying now.

OK. It sounds like we may eventually get some oversight, but where in the heck was the oversight before?

Bob, thanks so much for being with us.

LENZNER: Not at all.

SANCHEZ: You have been a great guest today, yesterday, taking us through this over the last 48 hours.

By the way, we have got a countdown clock. Let me draw your attention to this. This is what we're going to do for you now, countdown to the closing bell. It is 30 minutes and 54 seconds and counting, as you see.

I'm sorry to say, if we move the camera just a little bit to the right of that, you will actually see the numbers. And as I'm reading them right now -- Will, go ahead and take that, if you can -- there it is -- 223 down at this point. That is the Dow. That is the reaction to the AIG deal that me and Robert Lenzner were talking about just moments ago.

All right, what else do we have? Obviously, there's going to be some politics involved in this newscast because of what is going on in the business world, a new ad from Barack Obama. John McCain says he wants a special committee on the economy, a blue-ribbon committee. And would you trust any of the candidates to run your company? We're going to let you know what somebody said who is very important in one of these two campaigns, in fact, an economic guru saying neither one of these men, McCain nor Obama, is capable of running a U.S. company, but maybe they would be an OK president.

We will be back.

(COMMERCIAL BREAK)

RICK SANCHEZ, CNN ANCHOR: All right, welcome so much. I'm Rick Sanchez here in New York bringing you this special edition of our 3:00 newscast because of what's going on in the financial markets. A couple of things, we'll first of all, let's take a look at the number, the big number as far as what's going on in the market right now, you're going to see it. There on the left, you see 27:55 and counting, that's when the market closes. As we go in tight on the number on the right, you'll see it's 291. It's about nine points from hitting below 300. It just went back to 286. Now, let's switch that out once again and see if we can put the twitter board back up, because I want to read you some of the things that Americans are saying. I asked them earlier in the day while I was having conservation here on twitter.com, as well as on Facebook and Myspace. Are you angry, are you depressed, are you sad, how are you feeling about this on this day.

Let me show you what people are saying. This is Carrieme2, she says "Confused and depressed Rick, trying to figure out how this thing is going to affect me." So are a lot of other people. Phil Whitehouse says, "I'm a college student so I'm mostly feeling kind of neglected by older generations. The latest in a line of many." There you go. Let's go to number three, Jay Teiser says, "A government bailout for AIG, that money could send a lot of kids to college." Finally Pamvavhv, says "I'm pretty depressed honestly. My future school fund is sitting in an incentive stock that my fiance can't touch for 18 months." A lot of people worried, a lot of people angry, a lot of people confused. That is the sentiment that's being felt all over the country and we're receiving it from you right here, thousands of you reaching out to us to let us know what you're thinking. Time to talk politics now and the changing tone of this presidential campaign, changing in just the last 48 hours. For the past few months now, we at CNN have been calling the nation's economic challenges, issue number one. Well now America's money crisis is beginning to get real attention and traction on the campaign trail. Democratic presidential candidate Barack Obama is out with a campaign video to try and promote or highlight his economic policy. This is different, he's very personal. While blaming Washington, wink, wink, the republicans for job losses, declining home values and rising gas prices.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA, (D) PRESIDENTIAL CANDIDATE: This isn't just a string of bad luck. The truth is that while you have been living up to your responsibilities, Washington has not. That's why we need change, real change. This is no ordinary time and it shouldn't be an ordinary election.

(END OF VIDEO CLIP)

SANCHEZ: Well, presidential republican candidate John McCain says that he foresaw all of the current financial crisis two years ago. He blames greed, corruption, and the good old boy network in Washington and Wall Street for the financial downturn. McCain is proposing a committee of economic experts to try and diagnose and prescribe exactly what America's ailing economy needs to get back to financial health. Now, Obama calls McCain's committee suggestion the oldest stunt in the Washington playbook. By the way, someone apparently not following the script from the McCain playbook is his economic adviser Carly Fiorina. She was a last minute balk from doing an interview with CNN's "AMERICAN MORNING" today after what she said yesterday in a St. Louis talk radio interview. We have gotten a hold of that interview and it may shock you to hear it, but here it is.

(BEGIN AUDIO CLIP)

UNIDENTIFIED MALE: Does Sarah Palin -- John McCain obviously thinks she has the experience to become president of the United States, do you think she has the experience to run a major company like Hewlett Packard?

CARLY FIORINA: No, I don't. But you know what, that's not what she's running for. Running a corporation is a different set of things. I would just remind you that it is Barack Obama who is running for president. John McCain who is running for president. Sarah Palin has more executive experience than Barack Obama has. Barack Obama has never made an executive decision in his life. He has been a state senator and during his time there when a difficult issue came up, he voted present over 100 times instead of standing up and being held accountable to a yes or no vote. He has been in the U.S. Senate for a very short period of time and has been running for office most of that time. Sarah Palin as a mayor and a governor has made executive decisions. She has challenged her own party. She has taken accountability for those decisions. So, I find it quite stunning, actually, that the Barack Obama campaign is questioning Sarah Palin's experience. She has got more executive experience than he does, and she is the vice presidential nominee. Barack Obama is the presidential nominee.

(END OF AUDIO CLIP)

SANCHEZ: Point to be taken still is that she doesn't think that neither Barack Obama nor John McCain is capable of running a company yet running the nation. Once again, with the government bailing out AIG, Fannie, Freddie and who knows what else in the coming days, the question now is who truly is up to the task of fixing our economic problems? We're going to take up these political topics with our cnn.com political editor Mark Preston. That is coming up next. There is Mark, we look at the check of the market, obviously still down. Will it end up under 300 again? We will be right back.

(COMMERCIAL BREAK)

SANCHEZ: We welcome you back. I'm Rick Sanchez, I'm coming at you now from the Time Warner Center in New York. Two big numbers that we put up for you. The one on the left is how much time is left before the closing bell. The one on the right is the numbers coming out of Wall Street itself, and folks, it does not look good. It's starting to go further south in fact. Remember, we started the newscast, we were somewhere around 160-something, now it's all the way down to the minus column 352 and apparently has been heading in that direction in the last five minutes or so, so this is not a good situation. What it says is investors are not happy with this deal the government has put together to try and rescue AIG. Let's chew on some of the political topics now. Let's go to our CNN political editor Mark Preston for some Preston on politics. Mark, before we do anything else, this comment by Fiorina, what she seems to be saying is that the presidency of the United States is kind of a titular title. It's a figurehead. It's quite not as difficult or as important as being a company head or a CEO. What is she talking about? Why would she say that about the man who has hired her essentially as his economic guru?

MARK PRESTON, CNN POLITICAL EDITOR: Well, Rick we don't know the answer why she actually made that comment, what we do know is that we will not hear her talking certainly in the near term. She has been put on the bench by the McCain campaign. They weren't very happy with that comment and not only did she say that about Sarah Palin in the interview in St. Louis, later on on MSNBC she was asked it and she went on to expound as you said earlier that she doesn't think that John McCain or Barack Obama or Joe Biden for that matter could run a company. So really, not on message, not a very good day for Carly Fiorina yesterday, not a good day for the McCain campaign when it comes to that, because look, right now, the focus is who can lead the country out of the mess that we're in right now. And when you have one of your top economic advisers, one of your top surrogates come out and say something like that, you have to question it.

SANCHEZ: Yeah, we're down to about 20 seconds, because we have so much to get to, but how big of an opening is this, this economic situation as bad as it is for the country, doesn't this serve up right into his strike zone? PRESTON: Well, this is what the Obama campaign says Rick, they're not necessarily going to go after her, they're going to keep on going after him. They might pull out that comment every once in a while to try to bolster it, but they have to be careful, Carly Fiorina is a very well known woman, very accomplished and they don't want to look like they're attacking a woman.

SANCHEZ: Thanks so much, Mark Preston, following things there for us in Washington, because it is obviously a political angle to this story as well. Thanks so much. Preston on politics we like to call it.

Markets are falling, in fact it looks like the Dow is down at this point, let's take a look, I'm going to look one more time, yeah it's still around 334. There are now officially 17:44 and counting before we hear the bell and the market closes. Stay with us, we're going to be right back. We're all over this.

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SANCHEZ: Obviously a lot of people out there upset. We're following this for you. Obviously, the rescue of AIG is meaning a lot of investors are saying we're not happy about this. Take a quick look over there over my shoulder and you'll see the countdown to the closing bell. It's now 15 minutes and 04 seconds. When last we checked it was down about 334 and still going down. We'll continue to check those numbers. What's it at right now, tell me in my here, it's at 350 right now. Thanks Michael.

Joining us live from Louisville, Kentucky, is James Neumann, he runs a value market grocery store. Also from Louisville, gas station owner Sukh Bains, he is on the phone with us from Kentucky. Gentlemen, the reason I want to talk to you is because you are our representation of what we call average Americans. You can tell us how bad things are for you and how worried you are. Running a grocery store, we'll start with you. What is your situation today and how much are your prices going up and what do you fear for your customers, your family, your friends?

JAMES NEUMANN, GROCERY STORE OWNER: Well, food inflation far and away has been worse this year than anything we have seen in the history of our industry. There is a lot of factors out there, and you know, gas is certainly driving things, farmers switching to corn from other crops to try to grow corn for ethanol. It has raised feed prices, it's made availability of wheat less so all of the byproducts whether it be pet food, cereal, pasta, are all going up in price. You know, it has been tough for our customers to absorb, it's tough for our employees to absorb.

SANCHEZ: What do you tell them? You tell them look, it's not my fault, I wish I could make things right, right?

NEUMANN: You know our customers are telling us yes that economic times have been tough on them, but they are not really blaming us. You know, they don't view us as raising prices because we are trying to go out and take advantage of the situation. SANCHEZ: Well, I'll tell you one guy who is getting a lot of grief it's Sukh Bains, he's joining us from Kentucky. We talked to him yesterday. You know if you sell gas for a living, everyone is going to tell you you're a thief that you're the one who's doing this, that you're making this thing go up and that you're greedy, right, Sukh, how are you putting up with this stuff? How are you dealing with it?

SUKH BAINS, GAS STATION OWNER: Well, first of all Jim how you're doing, it's nice to talk to you on the phone sometimes. But anyways, what we're really talking about is people are really upset, and I think you were talking about how it's impacted us, but the main impact we have had is the credit card fees. I mean gas has doubled in cost over the last two years, and it's 3 percent of $2 and 3 percent of $4 is a total different picture.

SANCHEZ: But the key is you're not the one who's raising the price for them. That's the point you probably want to make.

BAINS: Oh, no! We're not raising them. As a matter of fact, our gas margins have been horrible. We do not make what people think we make. I am with everybody for blaming the big oil. I mean, there is absolutely no reason on earth why crude should have jumped to $147 a barrel. You know, cost is up, and there is just absolutely no excuse for that.

SANCHEZ: James, Sukh, thanks to both of you for being with us. We wanted to get a sense what average people are saying out there. And there did seem to be this disconnect between, you know, as you said, big oil, big government and the little guys out there who are trying to make a buck or also employers. When we come back, we have another panel for you, this is going to be a panel with CNN money guests. First of all Tami Luhby, I don't know if you've read her stuff on cnn.com today, but she is the one who's the big headliner. And then Myron Kandel, he's an old salt, this guy has known the markets for many years and followed them. He was the original founding father of what is CNN business. So we're bringing him back into the conversation to ask him if this is unique from anything he has ever seen before.

All right, before we go to the break, let's go to the big board. Once again, we have 11:44 left, the market's now showing it's down on the negative side 340 and we'll continue to watch it. Two minutes and we'll be right back to answer your questions. Stay with us.

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SANCHEZ: Welcome back. Before we do anything else, let's check the market one more time. Let's check to see how much time we've got left. As a matter of 9:23 till the market closes, down 369. A little while ago, we were saying will it go under 300. Now I guess we have to ask will it go under 400. Not a good thing. All right, we're going to check on some of the tweets in just a little bit as well as Myspace and Facebook because I know a lot of you are trying to reach us and we're going to be reading as many as we can. But we're going as fast as we can, there's a lot going on in this hour. Let's start with our senior writer at cnnmoney.com and our CNN financial editor, Myron Kandel, both are weighing in on the pros and the cons and the concerns. And there's plenty of them. Miss Luhby, thanks so much for being with us. I've been reading all of your material today. Myron, you are the founder of what has now become a world -- a global CNN news, right?

This is important. We're looking at this thing now starting to go toward 400. How significant is that? Give us the big picture. What it means, your reference point and what it means to people who are watching us right now?

MYRON KANDEL, CNN FINANCIAL EDITOR: Well keep in mind, this is similar to what happened on Monday where there was a big sell off towards the end of the day. The Dow was down nearly 400 points early today. It came back to down 150, and now it's down 365.

SANCHEZ: Does that mean investors aren't buying into that and what does that mean to my four kids and my wife sitting at home in Atlanta watching us right now?

KANDEL: It means there's a lot of nervousness out there. I have one bit of advice, don't panic. Panic is the worst thing investors can do. They get out at the bottom and then they don't get back again until the market is near a top and that's when they get back in.

SANCHEZ: Is what happened this morning inevitable? Did AIG have to be saved, and if so, why?

TAMI LUHBY, SR. WRITER, CNNMONEY.COM: Well, AIG is a much larger company than Lehman Brothers is and it has 74 million customers in 130 countries, and has a trillion dollars in assets. This is a massive company for all of these assets being dumped on the market and a fire sale all at once. It would be chaos.

SANCHEZ: Do we need to go out and sell all of our AIG insurance if we have some?

LUHBY: No, your AIG insurance -- it was the holding company that was having problems, not the subsidiaries. Everybody has said that the subsidiary insurance companies are strong, they're financially solvent. New York State Governor David Paterson has come in and said that it's fine.

SANCHEZ: So we're ok for now?

LUHBY: Yes.

SANCHEZ: All right, my producers are giving me a wrap. We'll see if we can stretch this into more as we continue our coverage. Mr. Kandel, Miss Luhby, thank you so much for being with us. We certainly appreciate it. We're watching the markets, stay with us. I'm Rick Sanchez, we've got about six minutes and 50 seconds left to go. Stay with us.

(COMMERCIAL BREAK) SANCHEZ: All right. I'm looking over and oh boy the market just topped 400, it's now at 403, 407 and it seems to be heading continually going south. There's the number as we look at it. Four minutes left. Let's do this, let's check in now. We promised that we're going to be checking in on Latin America every day that we possibly can. Glenda Umana, is joining us now from CNN En Espanol to tell us what the big story is down there. Big doings in Mexico, right? Que pasa y Mexico?

GLENDA UMANA, CNN EN ESPANOL: Hola Rick, como esta, buenas tardes. Let me tell you this afternoon the police in Mexico releases, they have a male suspect participating in this attack this week in which seven people died and more than 100 were injured, including, Rick, 11 children. This occurred in the colonial city of Morelia during the Independence Day celebrations.

SANCHEZ: Great. Mumbaso as they say. Another attack.

UMANA: It is terrible.

SANCHEZ: It is terrible. Wolf Blitzer joining us now to let us know what's coming up from Washington, lots of doings there. Wolf, take it away.

WOLF BLITZER, CNN ANCHOR: Never dull here, Rick. The vice presidential nominee on the republican side, Sarah Palin, accuses Barack Obama of distorting John McCain's views on the economy. I'll ask a senior Obama adviser Robert Gibbs what he thinks about all of this. Also, Hillary Clinton says no way, no McCain and no Palin. But today one of her prominent supporters decides to support McCain. I'll speak to Lynn Forester de Rothschild. And we also have new poll numbers coming in from five key battleground states including Florida and Ohio. With 48 days to go until the election, it's a very tight race. You're going to be surprised by some of these results. All that Rick and a lot more coming up right here in THE SITUATION ROOM.

SANCHEZ: All right, new poll numbers coming up in about three minutes. Also the end of the market and it's not looking good. Look at it as we go to break because we'll be right back and we'll be ending with the closing bell.

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SANCHEZ: All right, let's look at it once again. Hey welcome back, I'm Rick Sanchez. The volatile day is going to end on a volatile note. 44 seconds and counting as you can see, the number stands at 451. Count us down, Susan Lisovicz.

SUSAN LISOVICZ: The market's going to close at its lowest which really shows the negative activity in the market. Another big loss on Wall Street. Where is the money going? Safe havens like government treasuries, which the 10 year treasury closed near a five-year low. Gold posted its biggest one-day dollar gain ever. And oil prices completely overlooked, oil jumped $6 today. Two words, who's next after the AIG rescue? SANCHEZ: I hear the bell. Where is it? It's at 460, it's going to end up right between 450. So Susan Lisovicz, thanks for taking us through this wild ride. Let's turn things over now to Wolf Blitzer and "THE SITUATION ROOM."