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Bush Reveals Historical Federal Buyout Plan To Secure Failed Mortgage Lenders; Stocks Soar As Investors Shift Cash Back Into Markets; SEC Closes Down Short Sellers, Fast Buck Investors For Sake Of Stability
Aired September 19, 2008 - 11:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DON LEMON, CNN ANCHOR, CNN NEWSROOM: Al right, Heidi. Have a fantastic weekend.
It is Friday, September 19th. Here are the headlines, right now in the CNN NEWSROOM.
An extraordinary move, the government takes drastic steps to end the dizzying tailspin engulfing the financial industry. Wall Street seems quite happy about the bailout plan, down right giddy as a matter of fact, because stocks are soaring. Look at that, up 322 points, the Dow.
How are you holding up during these anxious days? What can that stress do over money? What can it do to your health? That's the big question.
Hello, everyone. I'm Don Lemon live here at the CNN world headquarters in Atlanta. You're in the CNN NEWSROOM."
Well, you can forget the Band-Aid approach. The federal government is working up a big picture plan to end the year-long credit crisis and stop the fear sweeping Wall Street. Just moments ago President Bush, flanked by his Treasury secretary and the Federal Reserve chairman, announced proposals for the government to buy bad mortgages. Yes, wipe them off the books of financial institutions; unprecedented federal intervention in the private markets.
Covering it, this morning, Kate Baldwin on Capitol Hill. And CNN's Susan Lisovicz, she joins us from Wall Street.
Want to talk about specifics of the plan. They are still being worked out. Here is what we know right now. The federal government would take on the bad mortgage debt now held by financial institutions. By some estimates it totals as much as $2 trillion. Mortgage giants Fannie Mae and Freddie Mac would get additional money to buy home loans.
The government also put an emergency ban on short selling financial stocks. We'll explain what that means a little later on in our broadcast.
The government took steps today to ensure publicly offered money market mutual funds. Don't confuse these with money market deposit accounts at your bank. President Bush just moments ago said this: That the government must act now to restore confidence in the nation's financial system.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Problems that originated in the credit markets and first showed up in the area of subprime mortgages have spread throughout our financial system. This has led to an erosion of confidence that has frozen many financial transactions, including loans to consumers and to businesses seeking to expand and create jobs. As a result we must act now to protect our nation's economic health from serious risk.
There will be ample opportunity to debate the origins of this problem. Now is the time to solve it. In this difficult time I know many Americans are worried about the security of their finances. Every American should know the federal government continues to enforce laws and regulations protecting your money. Through the FDIC every savings account, checking account and certificate of deposit is insured by the federal government for up to $100,000. The FDIC has been in existence for 75 years and no one has ever lost penny on an insured deposit. And this will not change.
(END VIDEO CLIP)
LEMON: For the administration's fix to work, Congress must sign off on the plan. CNN's Kate Baldwin joins us from Capitol Hill.
Kate, you've been watching this. You were there at the White House -- or you're on Capitol Hill. How is this playing out in Congress?
KATE BALDWIN, CNN CORRESPONDENT: So far it seems they've agreed to cooperate which, as you know, is a big first step when you're talking about the administration, and especially congressional leaders in both parties.
They have agreed to cooperate, to hammer out a comprehensive plan that everyone can agree to, and they can agree to quickly. That started late last night with the dramatic meeting of the government's top money men, including secretary - Treasury Secretary Henry Paulson and more than a dozen congressional leaders, leaders from both parties and both chambers. They really got together and they said it was a very good first step.
And what we're hearing today is they seem to agree on concept, the fact that something needs to be done and done quickly, something to the effect of, as the number two House Republican put it, putting a floor under the financial markets is important. And they also need to take into consideration, though, as congressmen and women, they need to take into account the cost to the taxpayer. That's something we're hearing about a little today. Listen here to Congressman Roy Blunt.
(BEGIN VIDEO CLIP)
REP. ROY BLUNT, (R) MINORITY WHIP: We want to do the best thing for taxpayers, the best thing for pension funds, the best thing for mom and pop businesses, the best thing for people who have a mortgage that they're concerned about. I think there's a way we can do that. We'll just have to see if that's what happens. It's going to take the Democratic majority, also has to be committed to solving this problem or it won't be solved.
(END VIDEO CLIP)
BALDWIN: Now, Congress, they are waiting to still get this proposal, this finished proposal from Secretary Paulson and the administration to see really where they stand. Until then lawmakers are pretty reticent to say if they're satisfied or not, because they really just want to see exactly what the details of this plan included.
It's unclear when that proposal is going to get here. We have heard from one Democratic aid that they hope late this afternoon, possibly this evening. They really need to get the ball rolling there, hoping to get something hammered out as well as passed by the end of next week. That includes a lot of cooperation, as you know, and that can be the sticking point here on Capitol Hill.
LEMON: All right, Kate Baldwin on Capitol Hill. We appreciate your reporting. Thank you very much for that.
Stocks surged today on the news of a financial fix. CNN's Susan Lisovicz is at the New York Stock Exchange with the very latest on that. The Dow up 378 points right now, Susan.
SUSAN LISOVICZ, CNN FINANCIAL CORRESPONDENT: That's off the highs of the session, Don, I might point out. The president kept using the word "confidence", trying to restore - the government want to restore confidence in the nation's financial system. What we've seeing in the last hour and a half is investors are responding with a vote of confidence.
We're seeing it play out big time on the Big Board, the Dow Jones industrial average up 375 points, or 3.5 percent. We're seeing the other major averages respond as well. Big explosive gains in financial stocks. I'll just give you a few quotes here, Goldman Sachs is up 20 percent. We're seeing Merrill Lynch up 25 percent. Bank of America up 17 percent.
There's a lot of questions that remain here which is how are you going to value this bad debt? Financial companies are going to take a bath. There's no question about it. It's not like they're all of the sudden going to come out squeaky clean. We've been reporting for months there have been billions of dollars of write-downs. There are going to be more write-downs and how will it be valued? That is just one of the many questions.
Right now, we're seeing a very positive response because there was this dread in the market that despite all the government's extraordinary measures, for instance, seizure of AIG, that other shoes were yet to fall. And so this huge approach, this broad-based approach, might finally try to clear the decks, if you will, so it can start again and get financial institutions to lend. If they don't lend, we're going to see greater repercussions in the economy. That's exactly why Washington is moving the way it is -Don.
LEMON: All right, Susan Lisovicz, we'll be checking back with you. Thank you very much for that.
LISOVICZ: You're welcome.
LEMON: Today's SEC ban on short selling of financial stocks, that follows a similar move by Britain, and other countries who will likely jump on the same bandwagon. Although it's legal, short selling is partly to blame for the recent collapse of investment and commercial bank stocks.
Here is how it works. An investor, betting on a particular stock to go down, has his broker borrow shares, which he quickly sells. He waits for the price to fall, then buys them back at the lower price. Returns of the share to the original owner, then pockets the profit, minus commissions and expenses for borrowing the shares. It's easy money unless, of course, the price goes up. In that case, the losses are unlimited.
The presidential candidates are weighing in on the country's financial crisis. In Wisconsin this morning, Republican John McCain called for regulatory reforms to keep financial companies from hiding bad practices. He wants a trust to help deal with the immediate problems caused by the mortgage mess.
(BEGIN VIDEO CLIP)
SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: The financial crisis that we're living through today started with the corruption and manipulation of our home mortgage system. At the center of the problem were the lobbyists, politicians, and bureaucrats who succeeded in persuading Congress and the administration to ignore the festering problems at Fannie Mae and Freddie Mac.
These quasi-public corporations led our housing system down a path where quick profit was placed before sound finance. They institutionalized a system that rewarded forcing mortgages on people who couldn't afford them, while turning around and selling those bad mortgages to the banks that are now going bankrupt. Using money and influence they prevented reforms that would have curbed their power and limited their ability to damage our economy. And now, as ever, the American taxpayers are left to pay the price for Washington's failure.
(END VIDEO CLIP)
LEMON: John McCain also said the Federal Reserve should get back to managing the money supply and out of the business of bail outs.
Barack Obama, this morning, is backing the federal government's bailout plan. In a statement, Obama says he supports efforts to develop systematic solution to the current financial crisis. We expect to hear from Barack Obama at any time now. He is in Coral Gables, Florida, where he's scheduled to meet with economic advisers. We'll take you there live when Barack Obama begins his remarks in Coral Gables, Florida.
A former top financial regulator says this current crisis is perhaps the worst most Americans have ever known. We talked with former Securities and Exchange Commission Chairman Harvey Pitt. He says the government should make sure companies are transparent about their holdings and their financial health as well.
(BEGIN VIDEO CLIP)
HARVEY PITT, FMR. SEC CHAIRMAN: I think my concern is they are trying to point fingers of blame when you're in the middle of a crisis instead of trying to solve the problem. This is really basically a useless act. What we need now are hard solutions to come up with the transparency.
What's worst is that in 1999 when Congress reorganized financial service provision in this country, it deliberately did not change our regulatory system. And thus there are enormous questions about who has what authority in the system. So I think what we need now are action plans, not sort of criticisms of who should have done what when.
(END VIDEO CLIP)
LEMON: Wall Street, as we have known it, no longer exists.
Investment banks bought out, bankrupt or bailed out by the government. How you can understand exactly what went down this week and get the information you need to feel secure about your money, and your investments. Get the answers on a special edition of "Your Money" Saturday, 6:00 p.m. Eastern, only here on CNN.
A Florida family is told their son was killed near Baghdad. But the military is not saying much else. Unexplained death in Iraq.
(COMMERCIAL BREAK)
LEMON: A big step back in efforts to end North Korea's nuclear program. The secretive Communist nation says it is getting ready to start its nuclear reactor. It no longer wants to be removed from a U.S. list of states that sponsor terrorism. This comes less than three months after North Korea destroyed a cooling tower at its main nuclear site, as a symbol of its commitment to denuclearization.
Pyongyang says this is all because Washington has failed to honor its part of the deal. The U.S. is urging North Korea not to restart the reactor.
A Florida family loses a son in Iraq and is left in the dark about his death. Darrell Mathis says the Army is revealing very little information about how his son, Sergeant Darris Dawson and another soldier died. The military will only say that Dawson and Sergeant Wesley Durbin were shot Sunday by another U.S. soldier.
(BEGIN VIDEO CLIP)
We know in a dangerous situation when he went over there. We know that. But to not know what happens, that's the most puzzling, the most hurtful thing at this point. And to get bits and pieces from the media just is not right.
(END VIDEO CLIP)
LEMON: The Army says a soldier is in custody and the shooting is under investigation.
Murdered in a Maryland jail cell. That's the official ruling in the suspicious death of a 19-year-old inmate accused of killing a police officer. The state's medical examiner says Ronnie White was strangled. He was found dead in his cell in June just days after his arrest. White was allegedly driving a stolen car when he struck and dragged a police officer. Investigators now plan to question seven corrections officer at the Prince George's County jail. They are the only people who had access to White's cell.
In Florida, no charges are expected in a criminal probe of former Congressman Mark Foley. That word today to CNN from two law enforcement sources. He resigned two years ago after suggestive e- mails and instant messages he sent to teenage House pages surfaced. Authorities were investigating if Foley used computers in Florida to solicit minors in illegal activities. Foley's attorneys deny those allegations.
Detroit gets a new mayor. City Council president Ken Cockerel, Jr., was sworn in as an interim mayor, just after midnight. Public ceremony was held less than two hours ago. Cockerel replaces Kwame Kilpatrick and will hold office until a May 5th special election for a permanent replacement. Kilpatrick is heading to jail next month for lying in a civil lawsuit over the dismissal of two police officers. The former mayor also must pay $1 million in restitution.
All that red ink got you feeling blue? Well, we'll look at money troubles and how they can make you sick.
(COMMERCIAL BREAK)
LEMON: A year on the credit crisis roller coaster, your wallet may not be the only victim. Our Doctor Sanjay Gupta looks at money worries and the big impact that it can have on your health.
(BEGIN VIDEO CLIP)
DR. SANJAY GUPTA, CNN SR. MEDICAL CORRESPONDENT: Well, it's probably not surprise that there are psychological things that can lead to physical problems. We've known this intuitively for some time. This idea that your mind and your stress can cause physical ailments is something that it really coming to light. The American Psychological Association decided to take a closer look at it, trying to figure out what some of the biggest anxiety provokers were.
No surprise, I guess, to a lot of people, the economy, concerns about the economy, overall, the number one cause of anxiety right now. And 74 percent of people say work or money is causing a great deal of stress. Compare that to 2006, I mean, the economy has always been a source of stress, 59 percent, though, back then. So the numbers have gone up. This particular survey was done in June. So things have gotten worse even since then.
Now, what does stress do to the body? It can do all sorts of hinges. Starting from head to toe, it can cause you to clinch your jaw a lot, which you may not recognize, but can cause headaches. If you go down to the heart, it can increase your likelihood of developing heart disease, blood pressure regulation problems. And the digestive systems, you can get stress-related symptoms, including heartburn, stomach problems, a loss of appetite.
In the body, overall, lack of sleep can depress your immune function. This is something that a lot of people suffer from. Now, there are some red flags, if you will, to look for in yourself or a loved one. Difficulty concentrating, irritability, sleep problems, suicidal problems -- ideations, I should say. And the key thing here is people are going to have ups and down overtime, but if some of these symptoms last longer than two weeks, then it really is going to be something should have looked into.
Overall, what to do about it? Obviously everyone will be different and I don't want to give advice on individual's specific situations. But I think that overall if you can make a plan or budget in some way, have a family meeting about it. Make sure the family is incorporated into those discussions and be realistic, overall, about what you can control. I think that's going to be important.
I'll add one more as a doctor, try not to fall into a spiral of bad behavior or addictive behavior. A lot of people start to smoke, start to drink. They start to actually overall, some addictive behavior. So try and avoid that. Back to you for now.
LEMON: Thank you for that, Sanjay.
OK, guys, if you carry your cell phone around in your pocket, listen up. A new study says the signal from the phone may be decreasing your sperm quality. Now, if you keep the phone in your front pocket while it's in talk mode, that's what happened. That's due to the proximity of the reproductive glands. Representatives from the cell phone industry haven't reviewed the Cleveland Clinic study, but they're not giving it much merit. The study looked at only, only 32 men.
To get your daily dose of health news online, log onto our web site, you'll find the latest medical news, a health library and information on diet fitness. The address is CNN.com/health.
Leaving home to go to war and coming back after witnessing the horrors of combat are some of the most emotional moments of a soldier's life. This week's "CNN Hero" is a legally blind Vietnam vet who understands. Meet Walt Peters.
(BEGIN VIDEOTAPE)
ANNOUNCER: This is CNN Heroes.
WALT PETERS, VOLUNTEER: All right. There you go. God speed. Come home safe. We love you all.
If it wasn't for our soldiers and our veterans, we wouldn't have this beautiful country. They are our freedom. It's important that they know how proud this country is of them for their service.
My name is Walt Peters, and I'm often the last person a soldier sees when he boards a plane.
Be safe. We love you. Take care.
And I'm often the first person they see when they return.
Welcome home, young man. We're proud of you.
A friend got me involved with greeting flights through the Red Cross. Now I'm won of the leaders, and I train my volunteers.
Three miles out. Let's go, before wheels down.
When the soldiers come through, I walk around and talk with the soldiers.
Guys, it's so good to have y'all back home.
I'm a combat veteran. I served a lot of time in Vietnam. They know I can relate to them.
If you stay scared, you stay alive. You know what I'm saying?
Yes, sir.
Sometimes it breaks your heart because you ask yourself which one of these beautiful people are not coming home? I see the roots of our country and our future in every one of these soldiers.
ANNOUNCER: Get involved. CNN.com/heroes.
(END VIDEOTAPE)
LEMON: Financial dilemma. We have analysis of the government's latest actions to spur the markets. You're watching CNN, the most trusted name in news.
(COMMERCIAL BREAK)
LEMON: The economy is our focus today in the CNN NEWSROOM. And also politics and where the two meet on this. We want to get you live to Coral Gables, Florida, and show you the podium where Barack Obama will be speaking in just a couple minutes. He's also scheduled to meet with his economic advisers today. We'll bring that to you live.
I want to tell you that Barack Obama this morning is backing the government's -- the federal government's bailout plan. In a statement, he released a statement just a short time ago. Here is what it says. He says he supports efforts to develop a systematic solution to the current financial crisis. Of course, John McCain making his statements live this morning as well. We'll get you to Coral Gables, Florida, in just a bit as soon as Barack Obama starts to speak.
Meantime, a stunning government intervention in the private sector. The goal, end the financial crisis. President Bush announced a plan just a half hour ago. Congress promises to take quick action. If approved the federal government would take on the bad mortgage debt now held by financial institutions. An incomprehensible amount, perhaps as much as get this, $2 trillion of debt.
Also today, the government put an emergency ban on short selling financial stocks. And the government took steps to ensure publicly offered money market mutual funds.
We want turn now to our CNN money team for more on the big bail out and how the financial crisis affects you. CNN's Brianna Keilar is at the White House with the latest reaction from President Bush. Our personal finance editor, there you see her, Gerri Willis, she'll talk money markets, also how this affects you. We will start with Brianna Keilar.
We were listening to the president this morning, Brianna. He is trying to restore confidence in the American public.
BRIANNA KEILAR, CNN REPORTER: He certainly is, Don. And what he did was he outlined the problems that are facing the U.S. economy. He called this a pivotal moment, really stressing how important of a moment this is. And for the first time he discussed a comprehensive approach to dealing with the financial crisis.
His remarks today came on the heels of an announcement just minutes after an announcement from Treasury Secretary Henry Paulson. The headline from that announcement, really what Henry Paulson referred to as a troubled asset relief program. Basically having the government take over those bad loans, those lapsed mortgages from banks and financial institutions and restoring liquidity in the market there.
President Bush defended this move, having the government intervene her saying that it will require a significant amount of taxpayer dollars, as you just said. But President Bush stressed that the risk of not doing something is much greater. Take a listen.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: ... and it challenges and we are responding with unprecedented action. Secretary Paulson, chairman Bernanke and chairman Cox have briefed leaders on Capitol Hill, on the urgent need for Congress to pass legislation approving the federal government's purchase of illiquid assets, such as troubled mortgages from banks and other financial institutions.
(END VIDEO CLIP)
KEILAR: That is that troubled asset relief program that you hear him referring to there. Secretary Paulson, saying that the goal at this point is to work with Congress on that and get some legislation through next week.
Now, this may be comprehensive, Don, but keep in mind this is still considered a bit of a short-term fix, comprehensive, not like sort of the -- President Bush called them targeted approaches, AIG, Fannie Mae, Freddie Mac that we've seen in the last weeks. So, this may be comprehensive but it's still a bit of a short-term fix, the realization coming from the White House and Democrats and e Republicans on Congress, is that an overhaul of the system would take years, Don.
LEMON: All right. Brianna Keilar, joining us from the White House.
Brianna, we appreciate that.
To Gerri Willis now. CNN's personal finance editor.
And Gerri, why is this move by the Treasury, to insure money markets so important?
GERRI WILLIS, CNN PERSONAL FINANCE EDITOR: Hi there, Don. Well, let's start by talking about money market funds and what they are. There are money market mutual funds and money market accounts sold by banks. They both invest in short-term debt that's issued by the federal government or by companies. And they're widely used by comes as a place to keep emergency funds, so really a piggy maning for many Americans. All told, there is $3.5 trillion in money market funds.
Now, in the last week, investors have started pulling money out these accounts because they're worried, they fear they'll lose money, or that the funds will break the buck. That means they would get back less than a dollar for every dollar invested. And it's exactly what happened to holders of two of the funds in the past week.
But Treasury Secretary Henry Paulson said today, the government is going the stand behind these investments, up to $50 billion for the next year. In other words, you don't have to worry about losing money in your money market account. Financial advisers tell me that they're reassured by the move and that it should quell fears about these investors. They say stay put, stop worrying.
LEMON: Easy to say, easy to say. OK. We ask this question a lot but I don't think it can be asked enough. What does this mean then, what the president announced and all this.
What does this mean for the consumer, Gerri?
WILLIS: Well, Don, the take away here. It's good news, it's good news that the government is stepping in and almost every day with lines of credit, emergency funding, back stops for companies and investors. The government isn't going to let your nest egg dwindle to nothing.
And back to these mutual funds for just a second. If you can't settle your stomach, if you're still worried, call your adviser, call the fund company, consult the prospectus. That's the explanatory booklet they give you when you buy the fund. Find out exactly what your money market is invested in. If it's treasuries, those are the safest. If it's invested in corporate loans you can also switch your fund out.
LEMON: Gerri, Gerri, sorry to interrupt you. We want to get our viewers to Coral Gables, Florida. Barack Obama's speaking (INAUDIBLE).
(JOINED IN PROGRESS)
SEN. BARACK OBAMA (D), PRESIDENTIAL CANDIDATE: Thanks for your patience everybody. We are, as everybody knows, facing one of the most serious financial crises in this nation's history. In the events of last week from the failure of Lehman, to the bailout of AIG, the continuing volatility in the market, have not just threatened trading floors and high-rises of Wall Street, but the stability and security of our entire global economy.
Across this country Americans are worried about whether they can make their mortgage payments or keep their jobs or ensure that their retirement is secure. So, truly we're all in this together. Our government and the Federal Reserve will already taken unprecedented action to prevent a deepening of this crisis that could jeopardize the life savings and well-beings of millions of Americans.
But it's now clear that even bolder and more decisive action is necessary. In recent years, I've outlined plans that would have helped prevent the problems that we face. And yesterday I proposed the outlines of a plan that would establish a more stable and permanent solution to strengthen our financial system.
Today, I fully support the efforts of Secretary Paulson and Federal Reserve Chairman Bernanke, to work in a bipartisan spirit with Congress to find a solution of this sort. What we're looking at right now is to provide the Treasury and the Federal Reserve with as broad authority as is necessary to stabilize markets and to maintain credit. We also need a more institutional response to create a system that can manage some of the underlying problems with bad mortgages, help homeowners stay in their homes, protect the retirement and savings of working Americans.
In the coming days, I'll work closely to examine the details of the Treasury and the fed's proposal. And as I do, I'll work to ensure that it provides an effective emergency response by including four basic principles that my economic advisers and I just discussed this morning.
First, we cannot only have a plan for Wall Street. We must also help Main Street. I'm glad that our government's moving so quickly in addressing the crisis that threatens some is of our biggest banks and corporations. But, a similar crisis has threatened families, workers and homeowners for months and months and Washington has done far too little to help. For too long this administration's been willing to hit the fast- forward button in helping distressed Wall Street firms, while pressing pause when it comes to saving jobs and keeping people in their homes. We already know that the credit crisis that's emerged from our largest financial institutions is becoming a credit crunch for small business owners, homeowners and students seeking loans in big cities and small towns across the country.
And now that American taxpayers are being called on to share this new burden, we must take equally swift and serious action to help lift the burdens they face every day. In the same bipartisan spirit that's been shown with regard to the crisis on Wall Street, I urge Senator McCain, President Bush, Republicans and Democrats to join me in supporting an emergency economic plan for working families. A plan that would help folks cope with rising gas and food prices, spark job creation through repair of our schools and our roads, help states and cities avoid painful budget cuts and tax increases, help homeowners stay in their homes and provide retooling assistance for America's auto industry.
John McCain and I can continue to argue about our different economic agendas for next year, but we should come together now to work on what this country urgently needs this year.
The second principle I'd like to see in the emerging plan from the Treasury and the fed, is that our approach should be one of mutual responsibility and reciprocity. It must be designed to -- it must not be designed to reward particular companies, or the irresponsible decisions of borrowers or lenders. It must not be designed to enhance the personal gain of CEOs and management. The recklessness of some of these executives has helped to cause this mess, even as they walked away with multi million dollar golden parachutes while taxpayers are left holding the bag.
As taxpayers are asked to take extraordinary steps to protect our financial system, it's only appropriate that those who benefit are expected to contribute to the protection of American homeowners and the American economy. Just as support is not designed to pay off egregious executive compensation, it should not reward those who are ruthlessly foreclosing on American families.
Third, this plan must be temporary and coupled with tough new oversight and regulations on our financial institutions and there must be a clear process to wind down this plan and restore private sector assets in the private sector hands after restoring stability to the system. Taxpayers must share in any upside benefit that such stability brings.
Fourth, this plan should be part of a globally coordinated effort with our partners in the G-20. This is a worldwide issue. And while the United States can and will lead in stabilizing the credit markets, we should ask that other nations who share in this crisis be part of the solution as well.
One last point. We did not arrive at this crisis by some accident in history. What let us to this point was years and years of a philosophy in Washington and on Wall Street that viewed even common sense regulation and oversight as unwise and unnecessary. It shredded consumer protections and loosened the rules of the road. CEOs and executives got reckless, lobbyists got what they wanted and politicians in both parties looked the other way until it was too late. It is now the American people who pay the price.
The events of this week, I believe have rendered a final verdict on that failed philosophy. And it will end if I am president of the United States. We have to build upon the ideas I've laid out over the last several years about how to modernize our financial regulatory system in this country. And that establishes common sense rules of the road for our financial system to help restore confidence throughout the financial system.
Finally, given the gravity of the situation and based on conversations I've had with both Secretary Paulson and Chairman Bernanke, I will refrain from presenting a more detailed blueprint about how an immediate plan might be structured until I can fully review the details of the plan proposed by the Treasury and the Federal Reserve. I think it's critical at this point that the markets and the public have confidence that their work will be unimpeded by partisan wrangling and that leaders in both parties work in concert to solve the problem at hand.
I know these are difficult theys. And I know there are a lot of families out there that are feeling anxiety about their jobs, about their homes and about their retirement savings. But here is what I also know. This is not a time for fear. It's not a time for panic. It's a time for resolve and a time for leadership. I know we can steer ourselves out of this crisis because we have done it before. That's what we do as Americans.
Our nation has faced even more difficult times. And each moment when we have, we've risen to meet the challenges as one people and one nation. I am confident that we will be doing the same in this circumstance.
And with that I'll take three or four questions. Go ahead.
QUESTION: Senator, you talked repeatedly today about the recklessness of CEOs and so forth. By all these bail outs, these hundreds of billions of dollars, I mean, aren't we still sending a message to future gamblers that look, whatever you do, we're going to be there to back you up anyway so --
OBAMA: No. If we structure it properly, then the answer is no.
Here's how I would describe the situation. We have a immediate emergency situation in the capital markets. And it is important to provide the Treasury and the fed, broad authority to make sure that the credit markets work, that bills are paid, payrolls are made, that there's liquidity in the system.
We have then institutional problem that has to do with a regulatory system that's inadequate to the new global marketplace. All right? We set up after the Great Depression things like FDI insurance to prevent bank runs. We put in place capital requirements. We made sure that banks had to operate in a prudent way in order to qualify for FDIC insurance. And that part of it worked except that part of it is just a fraction now of our overall capital flows.
So we're going to have to update for the 21st century the same kinds of regulations that we put in place for the 20th century. And if we do that effectively, then we can prevent a situation where folks can take enormous risks knowing that, heads I win and tails, you lose. That is going to -- we're going to have to take some critical steps and I think the next administration has to be committed to upgrading those financial regulations.
But right now, what we have to do is make sure that the capital markets are working so that people, small businesses, folks who are waking up in the morning, know that their money market funds are protected. They know they can make payroll and that as much as possible, we are able to ensure that on Main Street, some of the pain is limited. And I think what has to be clear is that whatever is set up is not bailing out shareholders and CEOs. They need to take their losses because they were enjoying the upside when the times were good.
QUESTION: Two questions. You said on the campaign trail you're tough enough. And it looks like there's going to be have to be a tough interaction with the administration over whether there's going to be a stimulus bill added to this overall package. I'm told that Pelosi and Reid last night, pressed Secretary Paulson, who was noncommittal.
How tough are you prepared to be as the Democratic nominee, to see a stimulus plan is in this final legislative package?
Two; Paulson said hundreds of billions of dollars is going to be required to put this together. With that as reality, can you looking forward, still promise the tax cuts to the middle class you talked about? And with capital such a crucial issue right now, do taxes on dividends and other high-end taxes make sense?
OBAMA: Good. All right. Good questions. There is a relationship between the economic stimulus that I think needs to take place right now and long-term tax cuts for the middle class.
One of my central beliefs about our economy has been that a theory that gives more to the most, thinking that it's going to trickle down on everybody else is not going to work. That the more that we've got broad-based prosperity and families have higher wages and incomes, the better off the economy is going to be as a whole. And that's especially true at a time when we've got recessionary tendencies.
So, I think now more than ever, we've got to have the kind of broad-based middle class tax cut that I've talked about for 95 percent of working families. And I -- effectively, the stimulus package is a down payment on that long-term shift in our tax code. So, I think it is very important that even as we've stabilized the financial system, that we understand that people have been hurting long before Wall Street was hurting. And that if people are continuing to not be able to pay their bills at the end of the month, if they haven't seen wage increases when their gas and their grocery prices, their health care prices, the prices of sending their kids to college have all skyrocketed, that the underlying weakness in terms of consumer purchasing power, the underlying weakness in terms of people being able to make their payments on their homes, that's going to continue to put a drag on the capital market.
So this is -- this is a fundamental difference in philosophy that also happens I think to be the right prescription for what's ailing the economy. But short term, you know, in the next several days and weeks, we've got to make sure that Secretary Paulson and Bernanke have the broad authority they need just to make sure capital markets are working the way they need to.
Go ahead.
QUESTION: You said it's the time for leadership. Senator McCain is outlining a plan today. You say you're waiting on a detailed blueprint. Do you have an Democratic economic brain trust surrounding you here.
Does this suggest you're sitting on the sidelines, that this is --
OBAMA: No, no. Well, first of all, I took a look at what Senator McCain had offered and essentially, it's about as detailed as the one paragraph that he offered yesterday and that I talked about yesterday and that one of my chief economic advisers, Paulson, had written about -- excuse me, Volcker, had written about just a couple days ago in the "Wall Street Journal."
I am glad to see that Senator McCain agrees with not just me, but also Secretary Paulson and Bernanke. That at some point we're going to need some sort of institutionalized structure to deal with the underlying problems be of of bad mortgages. And some of the bad assets that some of these markets have.
In my conversations with Secretary Paulson, Bernanke, as well as my advisers, what is absolutely clear is that you don't put together something like that on the cuff. You don't do it in a day. We've got to do it in an intelligent, systematic and thoughtful fashion. And, you know, I'm much less interested at this point in scoring political points than I am making sure that we have a structure in place that is sound and is actually going to work.
Right now though, the problem is the capital markets and making sure that we get something in place quickly to ensure that the Treasury secretary and the fed have the authority they need to get capital flowing again. And I think that what we don't want to do is get too bogged down in some complicated, legislative wrangling. There's going to be a lot of time for us to be in a big argument about how some of these future plans should be structured.
QUESTION: Senator, because we're in south Florida, does that involve working closer with those nations in Latin America, that have not wanted to work with the United States before? OBAMA: Well, as I said before, I think it's important for us to get the G-20 involved in this conversation. We now have global markets. It's insufficient for us to think in isolation, that somehow we can cordoned ourselves off or that other countries can cordon themselves off from us.
Now, this has been true for a pretty long time. Some of you will recall that Bob Ruben faced some similar problems when he was Treasury Secretary when we had the Mexican peso crisis. But, it's even more true now. And the financial instruments that has been developed are even more complex. We've got even more leverage and debt and borrowing that's been taking place that makes the current situation that much more complex and interconnected.
So it's going to be very important for Secretary Paulson and Chairman Bernanke to coordinate with their counterparts in our countries so that everybody's moving in concert and everybody's rolling in the same direction.
QUESTION: Secretary Paulson says that it's going to cost hundreds of billions of dollars to bail out plan. Senator Shelby says perhaps even a trillion dollars. Do you believe that this is an appropriate amount? And secondly, if you were president would you set a limit, a cap per se, on the kind of burden taxpayers would have in bailing out these financial institutions?
OBAMA: Well, keep in mind the -- and I don't want to get too technical here, but what the Secretary is asking for is authority to do what's required to get the capital markets straight.
He is not saying, as I understand it and we haven't yet seen the details, that he is putting all this money at risk, whatever the amount is, and that that taxpayer money is automatically going to be expended. I don't want to comment on a particular amount, partly because I have not received a specific proposal from the Treasury Secretary at this point.
Here's what I would say as president. As president I would say to Secretary Paulson and chairman Bernanke, do what's required to make sure that people's money market accounts are protected. Do what's required to make sure the small businesses have credit lines to allow them to make payroll. Do what's required to make sure that the economy is running and that ordinary people are able to go about what they do every single day, which is work hard and support their families.
And what we then have to do is also make sure that taxpayer money is not being used to bail out bad decisions that are made by investors, shareholders or CEOs on Wall Street. And those principles, I think, are compatible. I think that Secretary Paulson is mindful of it. He's certainly heard from me that we don't want -- we don't want bail outs of folks who have been taken bad decisions. But what we also want to make sure of is, is that the economic system as whole continues and that ordinary people are able to wake up on Monday and keep doing what they've been doing.
Dana, I'll take that last question. Go ahead.
QUESTION: Have your advisers told you that the situation is stabilized? Or, should we expect more failures and more bail outs to come?
OBAMA: Well, here's where I think we are. The markets have a lot of worry right now about what assets are good out there, whether if they make a short-term loan to somebody they're going to get repaid. And so everybody is locked up. Everybody's freezed up. Everybody's hesitant about making what used to be routine loss.
And the job then of the Treasury and the Federal Reserve is to break through that psychology and let people know, you know -- if you make this loan today, then tomorrow folks are going to be able to pay it back. And to break this self-fulfilling prophecy that has gripped the market at this point.
Because it's not just a problem of underlying assets and values but it's also market psychology, it's hard to say how the market responds over the next week or two weeks, or three weeks. But what I can say is that if the treasury secretary has the broad authority that he needs, if the fed chairman has the broad authority that he needs and if the president is clear to both of them of the principle that I just outlined; make sure the capital markets are working and make sure that we are not using taxpayer dollars to bail out people who are making very bad decisions and walking away with millions of dollars, then I believe that the market should settle down.
I believe that the market should be able to say to itself, you know what, we are going to be able to get through this difficult period of time. Understanding that we're then going to have to still set up some institutional mechanisms to deal with some of the underlying problems of the economy. And that's what I've been talking about throughout the course of this campaign.
The short-term weakness in the capital markets is a reflection of longer term problems that we have in our economy. It has to do with the fact that wages and incomes have not gone up. It has to do with a tax code that has been skewed against folks on Main Street. It has to do with that we have under invested in infrastructure, under invested in our education system. It has to do with the fact we have not managed our federal budget with any kind of discipline and so we have been loading up enormous amounts of debt. It has to do that we have spent well over half a trillion dollars, soon to be a trillion dollars on a war in Iraq.
Despite the fact that Iraqis are now running surpluses, we're still spending $10 billion a month there. It has to do with the fact that we've got a broken health care system that is enormous strain on businesses as well as families. And so if we recognize that there are these longer term structural problems that have to be dealt with, starting with the housing market. And there's some confidence that, in fact, we're going to change economics philosophies from what we've seen over the last eight years to get those things right, then the key is for us now to just get through these turbulent times and for the markets to say to itself, we can solve these bigger problems. Let's make sure we don't compound them with fear and panic right now. OK.
Thank you, guys. Appreciate it.
LEMON: All right. Senator Barack Obama in Coral Gables, Florida, just moments after meeting with his economic advisers, he was (INAUDIBLE) with them. Former treasury bosses Robert Rubin, Lawrence Summers, ex-Fed chairman Paul Volcker and also University of California, Berkeley Economist Laura Tyson.
You see our money team is also joining us. Christine Romans and Ali Velshi. And he said, Ali and Christine, he's laying out a four prong plan basically, was to help the American people. He said, we not only need a plan for Wall Street, but one for Main Street as well. And in the next couple of days will work with his advisers to come up with more specifics on this plan.
ALI VELSHI, SENIOR BUSINESS CORRESPONDENT: Let me tell you, those four points. Number one, he wants it to be immediate. Number two, he wants it to protect people without rewarding risky behavior, or what he calls, imprudent decision. Number three, he says should be temporary, but it should deal with the regulatory problems that we're obviously facing in the financial industry. And number four, which is the interesting one, he thinks it should be a global coordinated effort with the G-20. That's new. That's something we haven't heard.
But, the bottom line here is what you are hearing in concert from President Bush, Henry Paulson, John McCain and Barack Obama, is that they want this not to be partisan. They agree something needs to happen very quickly. And alongside with that, you're getting a little extra commentary while they have the airtime. But fundamentally, they're saying something's got to get done.
CHRISTINE ROMANS, CNN CORRESPONDENT: And talk about putting aside the partisan wrangling. You know, Don, it's an interesting position that both of these presidential candidates are in. Because People are clamoring them for them to show leadership and to be decisive and to say, look, this fire is burning. If I were president this is what I would do. At the same time, they also have to step back and let this team do something without arguing partisan positions.
LEMON: Yes. And you know, it was interesting because you guys were here yesterday, at least you were Christine, when John McCain was giving his speech and Sarah Palin, as well. And it was a very different tone. Barack Obama in this, seems to be reaching across the aisle.
At one point he said, John McCain and I can argue over our economic policies all day long, but this is something that we need to come together on. And I thought what was interesting of what he said is that the American people have paid the price. American people, the public, was suffering long before Wall Street started suffering.
VELSHI: Right.
ROMANS: And that's really the core of Barack Obama's entire economic message. When you look from health care to taxes all along the line, he says that over and over again. But make no mistake. These two candidates have very different economic philosophies about what to do next. And so they've sort of been thrown a curve ball with this real emergency that's going on right in the middle of a very tough, very tight, very contentious presidential election. It's a remarkable time.
VELSHI: This deal, though, traditionally, would play more to Barack Obama than it would to John McCain. Because John McCain has Republicans there who share a belief that there shouldn't be any government intervention in anything to do with the free markets, let alone what is possibly the biggest bailout in the history of the world.
LEMON: It's interesting --
ROMANS: The other thing is, the people on Main Street tend to blame the incumbent party when there's economic weakness. And so John McCain has that extra burden.
LEMON: And Christine and Ali, it's interesting that you mention that it would play, you said, better for Barack Obama because -- and you know correct me if I'm wrong, I thought I heard him saying, we're going to hold off on our plan until we see -- we get more specifics from the fed chairman, more specifics from the secretary before we come up with a complete plan. And also to see if he will sign off on it, he said.
VELSHI: I would say, you would not want to be the guy in the room who didn't sign off on Henry Paulson, Ben Bernanke and congressional leaders spending the weekend locked up, which is probably what they will do and announcing a plan on Monday morning.
Christine made an observation a little earlier that she doesn't think that Henry Paulson is going to Congress and saying, let's sit around for 72 hours and chat about what we might do. Our speculation is that he has gone in with a plan and has said, do what you have to do to get this thing out.
ROMANS: I mean, make no mistake. This is the guy who's got the most credentials to deal with this of all of the lawmakers, certainly. He is somebody who was well regarded on Wall Street. So, was Robert Rubin --
VELSHI: And he's made breaking -- well you saw, next to Barack Obama, on either side of him, Laura Tyson and Rubin. I mean, yes, this is like the old Clinton administration that's standing next to him. So, there are a whole lot of people there. They are not going to be the ones to stay in the way of this thing. There will be criticism of this deal, whatever comes out over the weekend, or on Monday. But I don't think one of these two candidates is going to be the one to stand in front of it. They're going to have to throw their support behind it.
LEMON: Absolutely. I was sitting there watching him and I said, you know, it looked like the entire Clinton economic adviser team around him.
All right. Ali Velshi, Christine Romans, CNN's money teams. We appreciate your perspective on this and guiding us through this speech by Barack Obama. Thank you very much.
LEMON: Investment banks bought out, bankrupt, or bailed out by the government. How you can understand exactly what went down this week and get the information you need to feel secure about your money, your investment, whatever you have invested. Get your answer for "YOUR MONEY : EMERGENCY EDITION," Saturday at 1:00 and 6:00 p.m. Eastern, only here on CNN. We'll help you out with that.
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