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Bailout Goes Bust: Stocks Fight Back From 777 Point Drop; Credit Tightens for Borrowers
Aired September 30, 2008 - 11:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
TONY HARRIS, CNN ANCHOR: And good morning everyone. It is Tuesday, September 30th. And America's financial crisis has people outraged.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: You'd like to think that the markets may bottomed out, but with the lack of direction coming from Capitol Hill and other places, you sort of wonder if we're at the bottom or we're just starting out.
UNIDENTIFIED FEMALE: Nobody wants to lean you money. Nobody wants to take the risk.
(END VIDEO CLIP)
HARRIS: The House says no to the bailout, and everyday Americans get squeezed.
Good morning, everyone. I'm Tony Harris. And you are in the CNN NEWSROOM.
America's financial crisis, where do things stand right now? Let's work through this together.
First of all, take a deep breath, everyone. Stocks are fighting back from Monday's near 800-point plunge. There you see the Dow. It has been up all morning.
President Bush says he is talking to Congress about the next steps. House negotiators may tinker with the bailout bill to get more lawmakers on board, but not today. Lawmakers are off for the Jewish holiday.
In the meantime, Treasury can keep the crisis in check on a case- by-case basis. It can pump money into the credit marks, take over failing institutions, or push them into shotgun mergers. We've seen some of that. Experts say it's only a matter of time before the House vote hits home for you.
We will look at the sting of tight credit and how homes and businesses may soon feel it.
So let's get this straight. The House rejects the $700 billion bailout. The Wall Street sell-off that follows cost investors $1.2 trillion in stock losses. Today they're hoping to get some of that money back.
CNN's Richard Roth begins our coverage on Wall Street.
Richard, good morning.
RICHARD ROTH, CNN CORRESPONDENT: Good morning.
There's a little bit more optimism, of course, when stock prices shoot higher. Though it's not totally unexpected after such a large plunge. Many though say, of course, according to the statistics, it's a bear market as traders headed into today on Wall Street.
One trader I talked to though was upset at the lack of regulatory procedures and the honesty, lack of it, shown by banks and other companies which have now hit his investors hard.
(BEGIN VIDEO CLIP)
EUGENE GLABIK, MERCER CAPITAL: I spoke to a guy yesterday, and he said, "You mean to tell me that my account is zero?" I said, "Yes." I had to make 15 to 30 phone calls telling them that their accounts were zeroed out.
(END VIDEO CLIP)
ROTH: The carnage on Wall Street bringing a lot more tourists down here into the canyons of Wall Street. I talked with one mother and her 9-year-old daughter. She wanted to show her youngster a little bit of Wall Street after what happened. It certainly already had an impact on her, and it will have an impact on her daughter, too.
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: The most immediate impact on me is increased anxiety. And even though I thought I was going to be a fairly old retiree, now I'm looking at probably never retiring. But I'm sort of shielding her a little bit because I do believe that it's, to some degree, cyclical, and that by the time she really has to worry about her future, things will have balanced out. Mostly what we talked about is how we have to be more careful with money now and be more thoughtful about purchases we make and vacations we take.
ROTH: So are you happy that means less toys now because of the stock market? Is that what that means? Are you going to cry?
UNIDENTIFIED FEMALE: I want toys.
(END VIDEO CLIP)
ROTH: Well, who doesn't like toys? But the way they treated stocks yesterday, they treated them like an old toy. That was Trudy (ph) and Jolie Ellis (ph) on their way to religious services today, observing Wall Street in action.
Tony, back to you.
HARRIS: OK. Richard Roth for us on Wall Street.
Richard, appreciate it. Thank you. Yes, we all love toys.
The earthquake on Wall Street sending shock waves through global markets, but it is not all gloom and doom. Reaction to the U.S. financial crisis from some of our correspondents now around the world, starting in Asia.
(BEGIN VIDEOTAPE)
SOHN JIE-AE, CNN CORRESPONDENT: I'm Sohn Jie-Ae in Seoul. And brokerage houses like this one, traders and investors have been keeping a close eye on the markets all day, fearful that the free-fall of Wall Street will repeat itself in Seoul.
But at the end of the day there was a huge sigh of relief. After a dramatic five-point plunge at market opening, the market closed only 0.5 percent lower than the day before. Traders say this is mostly due to heavy buying by institutional investors, as well as investor sentiment that Wall Street and Washington will ultimately get their act together.
(END VIDEOTAPE)
(BEGIN VIDEOTAPE)
ROBYN CURNOW, CNN CORRESPONDENT: I'm Robyn Curnow, and I've just walked out of the Johannesburg Stock Exchange. The all share index in there is tanking. It's lost more than 5 percent of its value Monday. Like any emerging markets, South Africa is vulnerable to the insecurities and instabilities in the global market.
What has been interesting, that over the past few weeks, South Africa has been relatively isolated from the meltdown in the U.S. economy. Now, the impact hasn't really been felt here because the South African banking sector is not that exposed to the U.S. banks. And also importantly, the lending sector here is far more risk averse because there's far more poverty to deal with.
But what has spooked investors has been an internal power struggle here in recent weeks. That's really what has had local investors concerned. The president, Thabo Mbeki, was kicked out of his position effectively last week. And many senior members of the cabinet also resigned. It's that internal instability, the political crisis that has really weighed on investors' minds.
(END VIDEOTAPE)
HARRIS: Boy. More reaction to come. CNN's Richard Quest takes on a financial expert who says don't do anything, let the chips fall where they may. You'll want to stick around for that at the half hour.
The bailout bill's main goal: restore confidence, keep credit flowing. Now people looking to buy a house or car may not get financing. Businesses may not get loans. People may lose their jobs. With all those dire scenarios, will they play out today? No. But experts say it's coming.
CNN's Susan Roesgen is in Oak Park, Illinois, this morning talking with business owners.
And Susan, you were talking to a business owner about an hour or so ago who talked about running through his credit line. I don't know what was in that credit line, how much, or the burn rate. But when you get to zero, it says you've got a real problem.
SUSAN ROESGEN, CNN CORRESPONDENT: Yes, you do have a real problem. And Wall Street may be some 700 miles away from the Main Street here in Oak Park, Illinois, Tony, but business owners are already feeling the financial crisis in the their own wallets, their own businesses, like the guy who owns this popcorn shop.
I'll take you back in the back where he's working on it. You know, when you own your own business, you do a lot of the work yourself.
And this is Erik Clasesson. He's mixing up one of his candy- colored popcorns that people buy all year long, but especially over the holidays. They don't want to buy so much popcorn, Erik says, in the hot summer months, and that's how he wound up going through his $30,000 line of credit.
Erik, when did you know that what had happened just this week was going to affect you even more?
ERIK CLASESSON, MADLY POP'N: Well, it wasn't just this week, but over the last few weeks with the credit crunch coming in and the banks -- the consolidation of the banks and all that. You knew that credit money was going to be tight. So we kind of foresaw that it was going to be tough to get money.
ROESGEN: Yes, and your bank is Washington Mutual, which we talked about in the last hour. That's the bank that had to be taken over by JPMorgan Chase. So that makes it even worse.
You had about a $30,000 line of credit, right? And that is just gone. So you're not going to try to ask for that through the end of the year?
CLASESSON: Well, you know, I mean, we've already used it up. So it's not available. So now you move forward. And the good news for us is our big holiday season is right around the corner now. So, you know, things will start getting better for us here.
ROESGEN: What about your suppliers, the people who give you the flavorings for the popcorn, the corn itself, the butter? What are you hearing from them?
CLASESSON: Well, you know, our suppliers are all talking about times are hard, too, and business is slow, almost across the board, pretty much everybody. And because prices have gone up so much on items, you know, we buy corn and we buy cheese which is dairy. And so it's just like going to your grocery store, all our commodity and agricultural items have all just gone up 50 percent, 60 percent, plus 85 percent of what we sell here leaves in a box shipping.
ROESGEN: So you have the fuel prices. The diesel fuel prices probably really hurt you.
CLASESSON: Yes. There's fuel charges, and all our messenger deliveries, and then UPS, of course, has gone way up. And there's extra rates for residential deliveries, which we ship to a lot of houses. So those are all getting really expensive and going up, too.
ROESGEN: OK. Well, we'll let you get back to work. I know that you do this all the time. You don't have the luxury of just staying at the cash register.
CLASESSON: Well, Susan, jump in.
ROESGEN: Yes, sure.
HARRIS: Yes, I've got a quick question for Erik. Would you ask him if -- I'm assuming that he's got a really nice balance sheet, that the business has been successful through the years. I'm wondering, is there an opportunity for him to visit with investors who could maybe offer him some kind of a bridge investment to better times?
ROESGEN: Well, you know, Tony, I actually talked to Erik about this earlier -- I'm talking to Tony Harris, our anchor there in Atlanta. And actually, Erik has said that -- your business has diminished over the years with the diminishing economy.
What Tony wants to know, is there some way you could get some kind of investor to come in here if you didn't want to go back to the bank and try to extend your $30,000 credit? Is there an investor that you can talk to?
CLASESSON: You know, there probably are some investors out there. And, you know, we're just so close to our busy season starting up here now. You know, if it was three months ago, then, you know -- and we were strapped for cash, then it would be a different deal. Maybe look for some investor help. But at this point it's just sort of suck it up and get to the holidays and hope for a good Christmas.
HARRIS: There you go.
ROESGEN: Were you even able to watch the numbers rolling yesterday down, down, down? Or did you just hear about it later?
CLASESSON: When I ate my lunch I saw it online and I just sort of shook my head like everybody else did, probably. It's just -- it's just crazy, and it affects all of us. I mean, you know, it's not just their mortgages. When money's tight and I don't get paid here, then it affects my ability to pay my mortgage. And my employees, I cut back on their hours, and I'm doing more myself and spending more time myself here, just like every other small business owner probably is too. ROESGEN: Thanks, Erik. We will let you get back to work.
You know, Tony, I think that's what we're hearing, especially in these towns all across the city where you have locally owned businesses like the popcorn shop. There's a book store here. There's a locally owned pharmacy across the street, a locally owned toy store.
And I have talked to several of these business owners who say the same thing -- they're really, really worried. They don't know how they can continue production, continue making popcorn, continue paying employees if they don't have the credit to keep going.
HARRIS: You just put -- you put your head down, I suppose, and you do what Erik is doing right there. You get to work.
Susan, appreciate it. Good to see you. Thank you.
Want to take you now to Des Moines, Iowa. John McCain is on the stump holding a town hall meeting on the economy.
Let's listen in.
SEN. JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: I am disappointed at the lack of resolve and bipartisan good will among members of both parties to fix this problem. Bipartisanship is a tough thing, never more so when you're trying to take necessary but publicly unpopular action. But inaction is not an option.
Businesses all over the country cannot borrow to finance their own operations and pay their bills. If we do nothing, many may fail.
Sonic Corporation, a drive-in restaurant chain based in Oklahoma, learned on Thursday that one of its lenders, GE Capital, it stopped extending new loans to the chain's franchisees. That will block plans to rebuild restaurants, add equipment and open new locations.
When small businesses and big businesses like Sonic franchisees can't borrow, contractors don't get the remodeling work, equipment makers lose sales, and restaurants go out of business. It hurts the entire community.
When financing dries up, students can't get loans. In Wisconsin, more than 100 Milwaukee area technical college students couldn't access private loans to fund their education. Fortunately, the school was able to come up with emergency loans. But this temporary arrangement cannot continue. Markets need to work so that people can get financial help and students can be educated.
And again, I want to say, inaction is not an option.
In light of the House's failure to act this morning, I spoke to the president about two things that the administration has not done but should do following the inaction of Congress.
First, the Treasury has already used its exchange stabilization fund to back money market accounts. I encourage it to use this fund as creatively as possible to provide backstop for accounts across our financial system, to maintain confidence on the part of savers and investors.
And second, the recent housing bill gave the government nearly $1 trillion in authority to purchase mortgages. Housing and mortgages are at the root of this crisis. I encourage Treasury to take action to shore up mortgage values.
The administration can take these actions with the stroke of a pen to help alleviate the crisis gripping our economy. I urge them to do so.
Also, the FDIC should quickly be granted the authority to increase the deposit insurance cap from $100,000 to $250,000 so that families don't have to worry about their money. We cannot allow a crisis in our financial system to become a crisis in confidence.
I call on everyone in Washington to come together in a bipartisan way to address this crisis. And I know that many of the solutions to this problem may be unpopular. But the dire consequences of inaction will be far more damaging to the economic security of American families and the fault will all be ours. I will continue to do whatever I can to aid in a constructive answer to the challenge before us.
Thank you.
(APPLAUSE)
I want to thank all of you for being here. And I came here today, I planned to be here today to discuss the challenges that business, small and large, throughout America face here in the heartland of America.
By the way, I'm very happy to be here in Des Moines. I'm also happy to have had the opportunity of spending much time in the great state of Iowa.
One minor claim to fame is that my father was born in Council Bluffs, Iowa. But in interest of full disclosure, my grandmother and grandfather were transiting at the time and she was staying with a relative. So I can't claim too much in that respect.
(LAUGHTER)
But I also would like to claim traveling across this great state, the heartland of America, and also having the pleasure of visiting on several occasions the Iowa State Fair, which is indeed a great experience for any American, to have a pork chop on a stick followed by a deep-fried Twinkie, and visiting the prize-winning bore. I believe it was 1,200 and some pounds this year that -- last year was Big Red. I'm trying to remember the name this year.
But in all seriousness, it's the heartland of America, it's where America's economy rests. It's where our values rest. And it's a great pleasure for me to be back here in Des Moines, Iowa. So I'm pleased to have the opportunity to discuss with Don Lamberti (ph) and Albert Jennings (ph) and Rick Jergans (ph) and Larry Simpleman (ph) and Tom Galasky (ph) and Marion Erickson-Brown (ph), who are all in the business of free enterprise, who hire people, who contribute so much to our economy. And I'm very interested in hearing from them as to not only the challenges they face, but what they think needs to be done to get our economy on track again.
And I say this in the light of what I just said in my prepared remarks, my friends. This may be and is the greatest financial crisis of our lives. And we have to act, and we have to act together in a bipartisan fashion.
I'm committed to that. And I'm committed to doing whatever is necessary in a bipartisan fashion.
And there will be plenty of time to point the finger of blame. There will be plenty of time, and I'd be glad to talk about some of that blame, failings of Freddie Mac and Fannie Mae, and the reckless lending practices, and many of the other things that happened on Wall Street, and the insiders and the greed in Washington, D.C. But at this moment, I think I need to talk to America and hear what their solutions are, because we're going to have to get the support of all Americans to address this together.
With that, Marion (ph), maybe I can start with you, or whoever else...
UNIDENTIFIED MALE: Ladies first.
MCCAIN: Thank you. Thanks very much.
I do have a question for you, Senator McCain.
UNIDENTIFIED FEMALE: A lot of people assume that business owners like me will automatically vote Republican and that their employers will vote the Democratic way. If you could sit down with a group of our employers at Anderson Erickson Dairy that make on average $50,000 to $70,000 annually, and explain what benefits they would have under your leadership, would you do so?
MCCAIN: I would be glad to. Would you, maybe for the benefit of people here and mine, describe to me some of the challenges or -- an outline of some of the challenges you're facing? And then I'd be glad to respond to it.
UNIDENTIFIED FEMALE: Yes. We are facing high fuel costs.
We are a distributor and also a manufacturer. We make milk, yogurt and cottage cheese at our family-owned business. We employ 625 employees, and we are family-owned. I'm a third generation familiarly member.
And so the things that we face are high health care. Our health care costs have increased over 40 percent in the last five years. High fuel costs, and also high milk prices, raw milk prices, which is our major purchase for our business.
MCCAIN: So the price of milk has gone up that it's almost impossible for you to pass all of those price increases on to the consumer?
UNIDENTIFIED FEMALE: Yes. Yes, that's right. And also, fuel is also related to much of our packaging.
Resin prices, which is the plastic in packaging, the plastic in a gallon jug of milk and a half gallon jug, which is most commonly used by us, is rising. That is often related to fuel.
MCCAIN: And has that caused you not to hire?
UNIDENTIFIED FEMALE: Yes. Yes, that's caused -- we've had to pull out of some areas of distribution that are farther reaching.
We cover a five-state area. And some farther places in Illinois we've pulled out of because we simply cannot afford all the costs associated with the fuel, et cetera. And we have frankly not done as much innovation with products because we have so many higher raw costs for our products.
MCCAIN: Have you had to lay off?
UNIDENTIFIED FEMALE: We have not had to lay off. But we are not hiring right now.
MCCAIN: Thank you. You covered a wide range of issues, and obviously we need to have conversations with our other participants. But let me just address on this issue of the cost of fuel and transportation of your goods, as well as even the packaging of your product.
It all obviously has to do with the cost of energy. There's no doubt that we are in a situation where we're transferring $700 billion a year to buy oil from foreign countries that don't like us very much. Some of that money has been proven falls in the hands of terrorist organizations. And we have to -- and our dependency on foreign oil has grown rather dramatically, rather than achieving -- setting ourselves on a path to energy independence.
And very briefly, it's all of the above. It's wind, tide, solar, natural gas, nuclear power, biofuels, all of the ways in which we can generate energy sources within the United States of America and eliminate this dependence.
Nuclear power, in my view, is controversial still in the minds of some. But I believe we can store spent nuclear fuel and we can reprocess it. The British, the French and the Japanese now all reprocess their spent nuclear fuel.
Now, my friends, right now we have a security issue, and that is outside of nuclear power plants we have pools with spent nuclear fuel stored in them. That's a national security risk, as well as something that we don't think is good for America. So nuclear power isn't the only answer. But if you're concerned about climate change, which I have been for many years, it certainly reduces greenhouse gas emissions.
There's another area that's important, and that's clean coal technology. Despite what may have been said by someone else, we're going to have to continue to build coal-fired plants. And what we need to do, though, is improve and develop the technology for clean coal technology so we don't continue polluting and continue to contributing to greenhouse gas emissions which threaten our very planet. So as we achieve energy independence, we also will eliminate or reduce the cost of energy.
Offshore drilling has to be done, and we have to do it now. And it can be a bridge as we exploit enormous amounts of natural gas and oil deposits off of our coast. And it's as we achieve energy independence.
Finally, costs of transportation.
We need to develop flex fuels, hybrid, hydrogen, battery-driven cars. We have got to do that. And the key to America's future economy in some respects rests in developing these technologies and taking the lead again in the world, the most innovative. The most productive and the best worker in the world is in the United States of America.
We can develop these automobiles. It will create millions of jobs.
So I want you to have the capability to transport your high-bulk product in vehicles, in means of transportation that are clean, that are energy efficient, and are not dependent on the cost of imported oil. That's our goal.
And my friends, we can do this. All you hear is experts frankly saying, no, you can't do this, can't do that. We can do this.
So I'd be glad to talk about the other challenges that you face. And I'll make my other answers more brief. But elimination of our dependence...
HARRIS: All right. There you have it. John McCain, the Republican presidential candidate, in Des Moines, Iowa, this morning, holding an economic town hall meeting.
On the question on the bailout plan that did not pass in the House yesterday, you heard John McCain say inaction is not an option.
Let's bring in our Ed Henry, part of the best political team on television. Ed's in Washington.
You know, Ed, I was about to ask you before we went to the McCain event, how are the candidates answering the what's next question? The day after, I see Barack Obama and John McCain are offering up some new ideas. ED HENRY, CNN WHITE HOUSE CORRESPONDENT: They are. And you heard some of them from Senator McCain. One of them, to lift the insurance limits for FDIC deposits and banks. That matters to a lot of people around the country. Their life savings in various institutions, concerned about what they're watching and seeing here on CNN play on the markets. And what John McCain is saying is, let's lift those limits from $100,000 in deposits in one institution to $250,000.
Interesting, earlier this morning we got an e-mail from the Obama campaign saying exactly the same thing, that Barack Obama wants to make that change as well. Interesting as well that both candidates reached out to President Bush this morning in separate phone calls.
Both John McCain and Barack Obama talking to the president, what's the way forward? How can we get this going?
Both candidates realize the stakes here. It's been issue #1 on the campaign trail for weeks now, perhaps months. Now, more than ever, though, with this financial crisis just developing more and more and getting more urgent, both candidates realize they need to be speaking to these issues.
And John McCain in particular raised the stakes himself last week when he jumped off the campaign trail to say I'm going to work out a deal and all of that. And so you understand what John McCain was trying to say, beyond just those words, I just got off the phone a few moments ago with a McCain aide who said the point here is we are not "going to be a political punching bag."
John McCain's camp feels he's been pummeled over the last 24 hours in particular since this plan went down. And so this is the beginning of McCain trying to fight back.
Meanwhile, you've got Barack Obama. He'll be in Nevada and Wisconsin today, also talking up the economy. He's not about to cede any ground either.
So here we are just a few weeks from Election Day. Issue #1, it's game on, obviously -- Tony.
HARRIS: There you go. All right. Ed Henry for us in Washington.
Ed, great to see you. Thank you, sir.
HENRY: Good to see you.
HARRIS: iReporters are also letting us know how they're scaling back during this financial crisis. And Personal Finance Editor Gerri Willis tells you what to do about your 401(k).
(COMMERCIAL BREAK)
(BEGIN VIDEO CLIP) SUZE ORMAN, PERSONAL FINANCE ADVISER: They should be so worried about everything that they really start to truthfully change their behaviors. They have to realize that nobody is joking here. They can't continue to go out to eat, charge it on a credit card, and then just pay the minimum at the end of the month. They have got to go out into a different type of financial mentality, Wolf.
I have to tell you, I don't think that has sunk into them yet. So a few more days like this, a few more things coming down the pike, they may go, oh, my God, we may be in serious trouble here. And the fact of the matter is we are, evidenced by drops like this.
(END VIDEO CLIP)
HARRIS: OK, 30 minutes past the hour now, financial expert Suze Orman there, with Wolf yesterday in "The Situation Room", saying it's time to kick the credit card habit. Orman says all of us need to understand how serious the current situation is. And get serious about our own financial well-being.
So, let's get serious here. Your retirement portfolio may be a financial disaster zone today. What do you do now to stop the bleeding? Personal Finance Editor Gerri Willis joins us from New York.
Gerri, good to see you as always.
GERRI WILLIS, CNN PERSONAL FINANCE EDITOR: Hey, good to see you.
HARRIS: How safe -- I've got a quick question for you, because it is right to the heart of this matter: 401(k)s, how safe are they?
WILLIS: Information is power here. Look, Tony, I know a lot of people looking at the 401(k) statements all they're looking at is up and down arrows. That is all they care about. It is down, it is driving them crazy.
But look, you have to really investigate this statement. Look at it. That's what we're going to do for you right now. Let's take a look at the account summary. You'll see these details right over my shoulder here. As you can see, this particular 401(k) is down, like so many of us out there. We feel your pain here. And if you look below what you're going to see, possibly not on this graphic.
HARRIS: OK.
WILLIS: But this account is down 6.2 percent. That's all anybody focuses on. They're not looking at the fact that the employer has actually put money into this. You're getting some free money there that you're completely ignoring because you're so obsessed with losses. Remember, you're getting free money. Let's move on to asset allocation. Because this is really the key critical number to take a look at. I'll tell you why. Because that's going to tell you how risky you are.
Look at this one. This is a very un-risky portfolio, stocks account for only 48 percent of the portfolio, bonds 52. It's really weighted toward the bond market, which is safer. You need to take a look at this and figure out what it means for you. There's a great asset allocator tool at CNNMoney.com, that you can use to figure out what the right asset allocation is for you right now. But if you have heavy-duty losses, my guess is that you have too many stocks. That's what's going on here.
Let me summarize a few of these points for you, Tony.
HARRIS: OK, great.
WILLIS: Things you want to look at today. Asset allocation, you want to know do I have too much money in stocks? You're not going to do anything right away. But you need to know what you have.
Number two, you want to definitely look at who is running your money out there? Who is the mutual fund manager? Are they good? Are they bad? Are they quick to pull the trigger? You need to do research on Morningstar.com.
Choosing your investments, you need to know how they're being chosen. Who is running the money. Forget company stock right now. I know a lot of people at Lehman Brothers, for example, have Lehman stock.
HARRIS: Yes, that's right.
WILLIS: These are professionals. You don't want to double down on the risk of your employer. Definitely not.
Again, just to reassure people out there, now is not the time to sell, unload a lot of stocks. I know a lot of people are looking for an opportunity out there in the market. That's a positive. But unloading your 401(k) right now, you'll lock in your lows. It's a bad idea.
HARRIS: Good information, as always, Gerri . See you next hour.
WILLIS: My pleasure.
HARRIS: OK. To follow your fortunes read our special report, "America's Money Crisis." At CNNMoney.com, we have all of the days market news and numbers, expert analysis and much more.
Gerri is a calm in the middle of this financial storm. However, some CNN correspondents have had it.
(BEGIN VIDEO CLIP)
RICHARD QUEST, CNN INT'L. CORRESPONDENT: OK, but if you're right, you are saying that the regulators should now sit on their hands and do nothing. Hell to high water, let the whole thing go where it's going, because it's going there any way, the quickest way is a first class ticket to damnation in the economic market. Is that the gist of your argument that you're putting forward?
(END VIDEO CLIP)
HARRIS: Wow. Richard Quest takes on an economist in a must-see interview.
(COMMERCIAL BREAK)
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Nobody comes and bails me out, you know. When the economy got tough and our sales dropped down, we've gotten behind on bills. Nobody is having a session to help put rich's bills back in line.
UNIDENTIFIED MALE: Where else are you going to get it? From the banks. If the banks don't have it, Wall Street don't have. Who's got it? You got it?
(END VIDEO CLIP)
HARRIS: There you have it, America's money crisis. Here is where things stand right now. Stocks are trying to make up some of Monday's big losses. Right now the Dow is up triple digits. The index plunged 777 points when the House turned down the financial bailout bill. President Bush says he's working with Congress, right now, on the next move for his rescue plan. Negotiators may revise the bailout bill to get enough votes to pass it. Today the Senate's top Republican predicted Congress will get the job done.
(BEGIN VIDEO CLIP)
SEN. MITCH MCCONNELL, (R) MINORITY LEADER: I, too, want to reassure the American people that we intend to pass this legislation this week. We will pass it on a broad bipartisan basis, both sides cooperating to prevent this financial crisis from persisting. I think the message from the markets yesterday was clear. The time fore finger pointing, indeed, has come to an end.
(END VIDEO CLIP)
HARRIS: We are getting plenty of your I-reports, as well, reacting to the bailout bill going bust. Some of you say good, all that money could be better spent. Others say it's just what you expected.
(BEGIN VIDEO CLIP)
MATTHEW MILAM, IREPORTER: What's up, CNN?
So, the bailout was voted down. What a surprise. Could it be that the government officials who have been asked to really decide the future of this economy right now are not really sure what's going on?
JOHN PYCIOR, IREPORTER: A bailout for these companies that went -- what, got themselves into trouble? And then possibly giving the executives a good payout from it? Come on, let's be real. $14 billion, per state to help out -- education, it would be great. Imagine paying teachers more! (END VIDEO CLIP)
HARRIS: So debate over the failure of the bailout plan pretty intense. Our Richard Quest went toe to toe with a financial expert who says Congress shouldn't do anything, no matter what the consequences. Here is part of that exchange.
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QUEST: Basically what Puru is saying, come what may, whatever damage may be caused, however many jobs may be lost, it's basically the argument that says the damage is going to happen, you may as well take your medicine now. And what I'm suggesting is when you've got people like Henry Paulson saying that the patient is dying, you offer a dose of euthanasia in the process.
PURU SAXENA, CHIEF EXECUTIVE, PURU SAXENA LTD.: Richard, offered those to Mr. Greenspan when the tech bubble burst in 2000, he left interest rates at 1 percent long after the economy had recovered. This is just a consequence of that monetary policy. Basically you cannot print yourself out of trouble.
If you look at Zimbabwe in 2007, you look at Weimar Republic after the World War, you look at Yugoslavia in '93, all the countries which try and paper over the problem, always have a economic collapse, a total economic collapse. The pain now will be severe, but if you let this thing basically go on, let the dying patient --
QUEST: Surely, hang on, hang on, hang on.
SAXENA: -- basically live for a few more years, you will have more problems like that.
QUEST: I've got to jump in here, because this is the argument that says, if the thing goes over the cliff, so be it. But then what are you going to do to the poor, the needy, those who are going to suffer and the unraveling of the global financial system? Whatever wrongs there may have been by Alan Greenspan, et al., in loose monetary policy, you're visiting an entire panic on the rest of the world, aren't you, with that theory?
SAXENA: Richard, let's put this basically in perspective. If the financial markets go down 20, 30, 40 percent, well, of course it's going to affect the rich people. But I'm sure it's not going to affect the majority of the people on this planet who have no money to invest in the first place.
Now, if they throw more dollars at this dying system, what's going to happen, it will destroy the value of the U.S. dollar, the dollar will plummet, automatically commodity prices are going to go through the roof. Fuel and food prices are going to go through the roof. Millions of people will starve all over the world. Already we saw grain prices were at record highs. We had serious food problems. Now, if they do the same, we're going to have even higher commodity prices and a collapsing U.S. dollar. QUEST: OK, but if you're right, you're saying the regulators should now sit on their hands and do nothing hell to high water, let the whole thing go where it's going, because it's going there any way, the quickest way is a first class ticket to damnation in the economic markets? Is that the gist of your argument you're putting forward?
SAXENA: Richard, my gist of the argument is that this problem is not caused by the free market and by capitalism. This problem is caused by the implicit guarantees of the governments in the first place. If there was no implicit guarantee in Freddie or Fannie, those two companies would have never been leveraged 150 times. No normal company, a private company, has the audacity to leverage themselves 150 times.
This is a result of government supported banking. This is not a free market problem.
(END VIDEO CLIP)
HARRIS: What a debate. OK, our CNN Money team breaking down what you need to know about the bailout failure, and the financial crisis, Christine Romans and a panel of our Money experts will be along next hour to give you the information that you need.
Hurricane Ike affecting potential voters.
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UNIDENTIFIED FEMALE: Right now I'm going to be thinking about where I'm going to lay my head at in the next couple of weeks.
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HARRIS: In Texas, Hurricane Ike victims are worrying about rebuilding, also wondering if they will be able to vote in November, the mess left by the storm making it extremely tough for some voters to register by October 6th. Libraries, where you can normally pick up a registration card, are closed. Post offices are out. Some voter groups are lobbying the governor to extend the voter registration deadline another week.
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UNIDENTIFIED FEMALE: We have fundamentally been derailed because of Hurricane Ike. If people throughout the rest of the state of Texas were able to register to vote during that time, we deserve the same right to register to vote.
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HARRIS: The governor's office says local governments have requested extensions nor have county officials filed any registration complaints.
Check out our political ticker for all the latest campaign news. Just logon to CNNPolitics.com, your source for all things political.
You know the debates in the aftermath of the bailout bill going down to defeat in the House yesterday have been heated. One of the members of the CNNMoney team just about loses it.
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ALI VELSHI, CNN SR. BUSINESS CORRESPONDENT: I can't even believe this, Mike. I don't understand what Steve is talking about. He couldn't be more wrong. I really hope none of your listeners listen to him. This is not the shareholders on Wall Street.
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HARRIS: Our Ali Velshi gets down to the nitty-gritty of this Wall Street bailout.
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HARRIS: Ready for some really cool video? Take a look at this. A story with a lot of -- fluff. About 100 people invited to a Michigan pillow fight on Sunday, thanks to Facebook, about 1,000 people actually showed up. What do you think? Maybe a pretty good way to take out your frustrations over this financial mess?
Look, a bailout and Monday's stock market plunged. Steve Cardasco, is the host of a financial radio show in Philadelphia. He said the fallout is limited to investors. Well, that sent CNN's Senior Business Correspondent Ali Velshi into orbit. The pair sparred on "Headline News."
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VELSHI: I can't even believe this, Mike. I don't understand what Steve's talking about. He couldn't be more wrong. I really hope none of your listeners listen to him. This is not shareholders on Wall Street.
This is the person who can't get a mortgage today because the credit markets are frozen up. This is the person who can't sell their house because the buyer can't get a mortgage. This the person in a small business who is being laid off, as we speak, because their business couldn't get a bridge loan. This is the person at a major U.S. corporation who might be seeing their plant shut down because their company couldn't get short-term credit. That's how businesses operate in this country.
Steve may not agree with that and lost of people may not agree with it, but it's the way it is. To suggest that the harm today was shareholders is ridiculous. I've been saying all day this Dow loss is a side show, its not even the real issue. Credit markets are frozen. I will pardon Americans for not understanding that, because we haven't talked about it much. I'm not really ready to pardon Washington for not understanding it. But Steve should know better.
UNIDENTIFIED MALE: All right, Steve.
STEVE CARDASCO, HOST, BIG MONEY: Mike, I don't -- I'm sorry, who is that I'm talking to?
UNIDENTIFIED MALE: Ali Velshi.
VELSHI: Somebody who knows a bit about how the markets operate.
CARDASCO: I'm sorry, and what does he do?
VELSHI: Steve, I understand how the credit markets operate.
CARDASCO: I know, I'd like to know the qualifications of who I'm talking to. Are you a journalist? You a market guy?
VELSHI: Well, really, the advice is more useful than the qualification. You're telling people this is a Wall Street problem and it's a bail out for shareholders?
CARDASCO: Absolutely. It is for people who have skin in the game. You're the one. Follow the stock of Goldman Sachs, and look who is doing the deal. No, by the way, given me your fax. I will fax you my application that I started 10 days ago to get a mortgage on a property that I'm putting a bid on. I'll show you an approval on it.
Bottom line --
VELSHI: I suspect your credit might be better than many Americans who are suffering right now.
CARDASCO: That's the problem, here, my friend. Your fat cats on Wall Street giving money to people who -
VELSHI: No, we're not talking about fat cats, we're talking about line workers at factories that can't get money. We're talking about small businesses that can't get a bridge loan.
CARDASCO: That's not what we're talking about and you know it! It's about the guys on Wall Street saying, oh, my god, look what's happening here.
VELSHI: Wow.
CARDASCO: I'll tell you what, you follow the stock of Goldman Sachs and you can see when the real push for this whole thing started.
VELSHI: Steve, for a living -- this is what I do. I follow the stock markets.
CARDASCO: It is not about the average little guy. That's why the public is standing up and those on Main Street are calling 10-1 the politicians. Every single person that's in my industry says this thing's great. We need to do this to support industry. This is --
VELSHI: This isn't about your industry!
CARDASCO: It is absolutely about it.
UNIDENTIFIED MALE: Let me get in, you guys. Believe me, it has been fascinating to listen to you guys. Two guys, who are both knowledgeable, I'm sure the viewers are as well. But let's get back to the point, Ali. I will ask a point off that. We have had a ton of phone callers and e-mailers come to us, saying I don't want to pay this.
VELSHI: I understand that.
CARDASCO: So, somewhat to Steve's point. So, go ahead, Ali.
VELSHI: Steve's points are right about why you should be angry about this and why you should be frustrated that both Wall Street and Washington messed it up. I completely get that. The fact is we have frozen credit markets. And we don't cover that. We don't have a convenient little box that we can put in the corner, like we can with the Dow, to tell you how people can't get money. How businesses can't get money. We only learn of anecdotally and we learn about it after it's happened.
We know that Caterpillar had trouble raising money. We know that franchisees of major restaurants can't get their financing, which used to be a guarantee that you would get it. We know that small businesses can't get money. We know that General Motors has run down its entire credit line. There is no more credit. If General Motors doesn't make enough to pay its bills it will have to shut down plants, or do something else. That's what we know.
Now, I understand that that's no the world Steve works in, it is not the world that most people work in, but it doesn't mean it does exist. The bottom line is the credit markets are frozen. Stock market right now is a side show. So, if you want to punish Wall Street more than 50 percent of Americans have retirement investments in mutual funds, which are stocks. So, you kick Wall Street, you're kicking yourself right back.
I fully get why everybody -
CARDASCO: Most of them for the long term. And I do understand it, but let me finish with this. It wasn't too hard for Goldman-Sachs to raise capital when they floated common shares after Warren Buffet threw some money --
VELSHI: I get it, Steve, you're right.
CARDASCO: Listen, you don't get it.
VELSHI: You're mad that they're going to get a bailout along with everybody else.
CARDASCO: But you're saying some of us are disconnected from Main Street America, with mutual funds. Main Street America, that has mutual funds, that can understand what is in their mutual funds, we're smart enough not have an S&P 500 fund. Take a look at some of the listeners to my radio show here in Philadelphia, who said the S&P 500 is 22 percent financials. VELSHI: But that's where they're invested. They're invested in SPIDERs, ETFs, index funds, the biggest index funds going are ones that emulate the big basket of stocks. Like the Dow --
CARDASCO: And you're telling me that government is supposed to come in and support that? Absolutely not. That whole thing was built up over risk-taking, failure in the system. There will be others that come in --
VELSHI: You're right. You are absolutely right, Steve.
(CROSSTALK)
CARDASCO: Darn right, I'm right. We don't need the government in this thing.
VELSHI: We're agreed on the principles. We're agree on who did something wrong.
UNIDENTIFIED MALE: Gentlemen --
VELSHI: There's a fire going and it has to be put out.
(END VIDEO CLIP)
HARRIS: Are you having that same debate? In your homes? At work today? Over lunch today? Are you having that debate? Boy, oh, boy. Our CNNMoney team breaking down what you need to know about the bailout failure and the financial crisis. Christine Romans and our panel of Money experts will be along next hour to give you the information you need.
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TONY FRATTO, WALL STREET TRADER: They should just get the bill done and then blame people afterwards, and we can go on with our lives.
RICH SHELLENE, STORE OWNER: Nobody comes and bails me out, you know, when the economy got tough and our sales dropped down here in the last few months. We've gotten behind on some bills and nobody's come having a session to help put Rich's bills back in line.
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HARRIS: I'm with you Rich. Where's my bailout? America's financial crisis, Wall Street to your street.
I'm Tony Harris in the CNN NEWSROOM.
