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Morgan Stanley Reports Quarterly Losses; Did SEC Ignore Madoff's Alleged Schemes

Aired December 17, 2008 - 14:00   ET

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

(BEGIN VIDEO CLIP)
KYRA PHILLIPS, CNN ANCHOR (voice over): Doctors reveal details of a ground-breaking and life-threatening transplant; a woman now walking around with the face of a cadaver.

And give them credit. The Fed expected to approve some reforms to keep credit card companies in check. Will they help you pay down some of your debt?

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PHILLIPS: Hello, everyone I'm Kyra Phillips live here at the CNN World Headquarters in Atlanta. And you are live in the CNN NEWSROOM.

So, how can one man, even one smart, successful well-connected man allegedly swindle so many other smart and successful people out of so much money? That is what the Securities and Exchange Commission wants to know. The SEC chairman is outraged that his staff never had a clue about the alleged $50-billion pyramid scheme of Bernie Madoff.

Allan Chernoff is on the case in New York and he will join us, in just a moment, about the multiple p failure process.

Well, we're not done yet. At the bottom of the hour find out how the feds followed the dollars and uncovered the felonies. Because former FBI agent, Harold Copus will join me right here in the NEWSROOM to talk about what happens next.

And once again, the worst fears of economic analysts are realized, and then some. Morgan Stanley is the latest one-time titan of Wall Street to rack up astonishing losses. I'm talking $2.3 billion in a single quarter and that is after getting $10 billion from the bank bailout. Analysts were expecting a loss of less than $300 million.

So how is Wall Street reacting to that multibillion-dollar loss? Susan Lisovicz at the New York Stock Exchange with all of the details from there - Susan.

SUSAN LISOVICZ, CNN FINANCIAL CORRESPONDENT: Well, never a dull moment, Kyra.

Morgan shares were down 5 percent earlier today and right now the stock is rallying 9 percent. But overall the market has pretty much turned as well. You know, and one of the things that has been observed, of late, is all the bad news, investors have been taking pretty well. Some bullish investors say, and analysts say, that this could be a sign that, you know, the market is bottoming out. That may be a little bit premature given the fact that the forecast for at least the first part of the new year is expected to be just as bad if not worse.

In terms of Morgan Stanley shares, well, you know, there could be some, you know, buying on the dip here, because the stock has lost more than 60 percent since Labor Day. You mentioned that investors thought that there was going to be a loss of maybe $300 million. It was more than $2 billion. Nearly every key unit at Morgan Stanley was hit, and hit hard. So the company has been doing what it can. It has cut the bonus pool in half, and John Mack, the CEO, is not taking an annual bonus.

If you remember what happened in the last quarter, Lehman Brothers collapsed, Merrill Lynch was sold to Bank of America and Goldman and Morgan Stanley, the last independents, both changed their status to banking holding companies. Bloomberg says, Kyra, that the losses and the write-downs from the credit crisis have now exceeded $1 trillion with Morgan's Stanley's loss.

That is why it is such a big deal. $1 trillion and credit, obviously, is the oxygen that keeps the economy going, and it basically was frozen after the collapse of Lehman Brothers --Kyra.

PHILLIPS: All right. Susan, thanks.

LISOVICZ: You're welcome.

PHILLIPS: Let's get back now to that alleged $50-billion pyramid scheme by that man, apparently at the head of it, Bernard Madoff. Allan Chernoff on the case for us there in New York. It just seems apparently there were so many clues something was going on, Allan, where was the SEC?

ALLAN CHERNOFF, CNN SR. FINANCIAL CORRESPONDENT: Absolutely. That's exactly what many victims are asking. And they ask that as they come to terms with the devastating idea they may have lost most or much of their wealth. One Madoff investor Bob Chew told CNN that he felt lucky and proud to have been a client, and now he says he has lost $1.2 million, and his family's retirement nest egg.

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ROBERT CHEW, MADOFF INVESTOR: The closest analogy I think that I can come up with is, is murder. I have never had that happen in our family, but it is kind of like a financial murder. And the feeling that you get is that you are hopeless, and your life is forever changed and you just don't even know where to start to pick up the pieces.

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CHERNOFF: Chew and others wonder where was the SEC? Why didn't the Securities and Exchange Commission protect the investors? Even the chairman of the SEC is criticizing his own commission. Christopher Cox, in a statement, said credible and specific allegations regarding Mr. Madoff's financial wrongdoing going back to 1999 were repeatedly brought to at the attention of the SEC staff, but were never recommended to the commission for action.

He said, "I'm gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations."

Now, the SEC's Inspector General David Cox is going to investigate. And he tells CNN among the questions that he'll be looking into is the relationship between a former SEC Inspector Erik Swanson and Bernard Madoff's niece, who he married last year. A spokesman for Mr. Swanson says that he did not participate in any examination of the Madoff Investment Securities while involved with Mr. Madoff's niece. In any event, the SEC is now dealing with a very embarrassing situation. And the House Financial Services Committee also plans to conduct an inquiry in the coming weeks - Kyra.

PHILLIPS: Yes, everybody pointing the fingers. We'll follow all the pointing. Allan, thanks.

Stung by a huge drop in oil prices, OPEC is hitting back. The cartel is cutting oil production by 2.2 million barrels a day starting January 1. That is on top of a recent two-million-barrels a day cut. Russia and some other OPEC outsiders are making cuts as well. OPEC produces about 40 percent of the world's oil. Prices have plummeted more than $100 a barrel since reaching record prices in July.

And two British air carriers are putting a smile on passengers' faces because of failing oil prices. British Airways and Virgin Atlantic are trimming fuel surcharges and that means lower ticket prices, more than $50 cheaper for some long-haul flights.

And with the big drop in oil prices American drivers are also smiling on their way to the pump. AAA says that today's national average price for a gallon of regular unleaded is just over a $1.66. That is up about a half a penny from yesterday, but still way below the July's record high of $4.11 a gallon.

Well, the governor of Illinois and the president-elect of the United States have one thing in common, both say that they can't wait to talk in public about the scandal that may cost the governor his job, and maybe his freedom. Barack Obama and Rod Blagojevich talked around the scandal in Chicago. While in Springfield a legislative panel got back to work on a process that could lead to impeachment.

Today, Blagojevich's newly hired lawyer was front and center, accusing some lawmakers of bias. CNN's Brianna Keilar is keeping tabs on all of it for us.

Brianna, President-Elect Barack Obama keeps wanting to introduce Cabinet choices, but reporters keep asking about Blagojevich. So I guess there has to be a happy medium somewhere?

BRIANNA KEILAR, CNN CORRESPONDENT: Yeah, he can't get away from talking about, or at least having the reporters focus on the Blagojevich scandal.

Today, he had to field yet another question about the scandal. He was basically asked by a reporter, you promised -- or you ran a campaign saying that you would be transparent, but you cannot be when it comes to these conversation between your staff and the staff of the governor. That reporter asking, how difficult is it to not be able to release that internal review when the American people expect transparency? And here is what Obama said.

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SEN. BARACK OBAMA (D-IL), PRESIDENT-ELECT: Well, it is a little bit frustrating. There's been a lot of speculation in the press that I would love to correct immediately. We are abiding by the request to the U.S. attorney's office, but it is not going to be that long. By next week, you guys will have the answers to all of your questions.

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KEILAR: Yeah, so that internal review being announced next week, and being delayed at the request of the U.S. attorney. So again, this is probably going to be a repeat thing, Kyra, where we hear the reporters asking questions when Obama is trying to stay on message about the Cabinet appointments.

PHILLIPS: Well, he's getting closer to filling the entire Cabinet. We are still getting it out there. We are still hearing names, there's more to come.

KEILAR: Yes, there are more to come. We are actually expecting Transportation secretary, as well as the Labor secretary. The director of National Intelligence, whose is the person who oversees all of the intelligence agencies in the U.S., as well as CIA director, and we are expecting a lot of these to be kind of getting out of the way, for him to be announcing some of these. He is actually going to Hawaii this weekend. So obviously the goal is to get them out of the way before then, Kyra.

PHILLIPS: All right. Brianna, thanks.

Well, putting the smack down on those hated credit card companies. The Fed is expected to pass some reforms for the little guy.

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PHILLIPS: An Iranian-American student arrested and now she can't leave Iran. We will tell you about the efforts to get her back to school in California.

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PHILLIPS: Well, to lots of people it seems like credit card companies operate with impunity and changing your rules and rates whenever they want to. So some reforms on the table at the Fed could be fantastic for those of us who use plastic. Here is our Personal Finance Editor Gerri Willis.

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GERRI WILLIS, CNN PERSONAL FINANCE EDITOR (voice over): Credit card debt, and the average American struggles with more than $9,000 in credit card debt. But changes could be coming soon. On Thursday the Fed is expected to adopt rules that could make it easier for consumers to pay off that debt.

GREG MCBRIDE, SR. FINANCIAL ANALYST, BANKRATE.COM: Reining in certain practices will help level the playing field for some consumers with regard to credit cards and will help some people more quickly dig themselves out of debt.

WILLIS: Among the rule changes, credit card companies would no longer be able to make rate hikes retroactive on old debt. Rate increases would only apply to new debt. The new rules would end what experts call universal default, when the credit card issuers raise your interest rate because you are late on other payments, such as mortgages, or another credit card. Some banks like Chase and Citibank have already discontinued this practice.

Under the new rules the payments would likely be due at least 21 days after they are mailed, or delivered. Currently some card companies have shorter cycles or require that payments be received by noon by the due date. But no matter what the Fed does to help the consumers get out from under the debt, it may not change the spending habits that got them there in the first place.

MCBRIDE: At the end of the day, it really boils down to consumer financial habits.

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WILLIS: Well, the Federal Reserve received over 60,000 comment letters from the public on these proposals. The biggest number ever, and obviously a lot of people are weighing in. Of course, we will continue to monitor this and bring you the latest, Kyra.

PHILLIPS: Gerri, didn't we hear that consumers are already cutting back on debt?

WILLIS: Well, look, you know more credit card companies are cutting credit limits and the bottom-line debt has just become more difficult to come by. As more people lose their jobs, there is just less money for the households to spend, Kyra.

PHILLIPS: Well, in this environment, what is the best way to protect yourself from the credit card practices, then?

WILLIS: Well, you have to read your statement carefully. You have to know what you're in for, when the deadline are. Some of these folks had noon deadlines on debt. You have to make sure what you are responsible for and try to pay this thing off each and every month, that is the easiest way to not to get socked with extra fees.

PHILLIPS: Gerri, thanks.

WILLIS: My pleasure.

PHILLIPS: We will call it drastic surgery. Doctors talk about their success with a cutting-edge transplant giving a woman a whole new face.

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PHILLIPS: Prime Minister Gordon Brown says that British troops will leave Iraq by the 4th of May. Britain has some 4,000 troops in Iraq and their departure means that U.S. troops will be sent into the southern part of the country. Brown made the announcement today during a meeting with Iraqi Prime Minister Nuri Al Maliki in Baghdad.

Well, family and friends of an Iranian-American student are pleading with the government of Iran to allow her to return to California. As CNN's Asieh Namdar reports, the college student's arrest comes as other American students are studying in Iran.

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ASIEH NAMDAR, SR. WRITER, HEADLINE NEWS (voice over): A view of a foreign land as seen through the camera lenses of a scholar.

ROBERT BERDAHL, PRES., ASSN. OF AMERICAN UNIVERSITIES: I believe that the people-to-people diplomacy is a very good first step, and I'm happy to have been a part of it.

NAMDAR: Former UC-Berkley chancellor Robert Berdahl led a delegation of six university presidents to Teheran in November, the latest in a series of academic exchanges between the two countries underway since 1999.

BERDAHL: I think that the more we have these informal discussions, the more exchanges that we have with Iranian scholars and scientists, the better understanding we develop and the better relationship we can ultimately have between the two nations.

NAMDAR: Berdahl's visit came a month after the arrest of Iranian-American graduate student Esha Momeni. Momeni had gone to Teheran to work on her master's thesis about the women's rights movement in her homeland when she was arrested for a traffic violation. She was released from jail after 25 days, but still cannot leave the country.

Momeni's family and friends have launched a major campaign online calling for her release. They say that Iranian authorities have not returned her passport.

NAMDAR (On camera): Now, Berdahl's group did not engage in political talks with Iran, but says that the detention of Momeni, and other academics before her, is an impediment in advancing people-to- people diplomacy.

BERDAHL: We raised the issue of detentions in a number of our conversations. This is a troubling aspect and one that does present an obstacle to our ability to expand exchanges.

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PHILLIPS: All right. So does Esha have any connections to any type of extremist group?

NAMDAR: Not extremist, Kyra, but she is a member of a group called Change For Equality, and this is a group that is trying to collect 1 million signatures to change laws they say are discriminatory against Iranian women. They say the laws basically make Iranian women look like second-class citizens, so they are trying to change those laws and Esha was involved in that group.

PHILLIPS: It makes me think about the Nobel Peace prize winner, Ebadi.

NAMDAR: Shirin Ebadi talked about her case and asked for her to be released.

PHILLIPS: Right.

NAMDAR: And she has also been a very huge advocate of changing the Iranian laws.

PHILLIPS: Wow.

NAMDAR: So, it is not just Esha, it is all the Iranian women, who want to change these laws.

PHILLIPS: And there are a lot of women that do. Now, she is not the first Iranian-American to ever be detained?

NAMDAR: She is not, Kyra. Haleh Esfandiari, from the Woodrow Wilson Center, she also was detained in Iran a couple of years ago. Actually, last year, I believe, she was detained for three months and finally released. And a former FBI agent, Robert Levinson, and American, he disappeared on the Kish Island, in Iran, last year. And Kyra, no one has heard of him since. His family has launched a major effort to find him. And Iranian authorities, at this point, according to the State Department have not been very forthcoming with information.

PHILLIPS: A lot of people don't realize that a lot of Iranians want a democracy and don't want to live the life they are forced to and they come to America. And there is this tension between Iran and the United States. Barack Obama has his hands full, for sure.

NAMDAR: He sure does. And these cultural exchanges, you know, you would hope would open up the door. But if you keep detaining Iranian scholars, Iranian academics, it certainly makes those cultural exchanges that much harder.

PHILLIPS: And it is those brilliant people who help us understand how to --.

NAMDAR: I certainly hope so. PHILLIPS: Yes, bring it together.

All right, Asieh, thanks.

NAMDAR: Sure.

PHILLIPS: Well, a whole lot of investors are mad at Madoff, but who let him operate under the radar for years? Congress, among others, well, want to find out.

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PHILLIPS: Well a Georgia Muslim woman is freed today after being arrested for refusing to take her headscarf off in court. Rusty Dornin here with all the details of what went down.

RUSTY DORNIN, CNN CORRESPONDENT: Yes, the Islamic community in Douglasville, Georgia, is very upset about this. They feel like they are being discriminated against.

It turns out that Lisa Valentine went to court with her nephew. She didn't even get through the metal detectors before the bailiff said, you cannot come in here with your headscarf on. So, she ended up arguing with the bailiff, and that is when the bailiff said, listen you are going to have to go before the judge. She said, I will not going to see the judge. The judge ended up sentencing her for 10 days of jail for contempt of court.

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DORNIN (voice over): Did he ever say why he sentenced to you to 10 days for contempt of court?

MIEDAH LISA VALENTINE, ARRESTED FOR WEARING HEADSCARF: No.

DORNIN: And you are saying that you never went inside of the courtroom?

VALENTINE: I never went inside the courtroom until they dragged me in handcuffs to the courtroom. I was by the door ...

DORNIN: So, it was only after you went through the --

VALENTINE: ... trying to leave. I didn't even go through the metal detector. She wouldn't let me get that far. She said I couldn't go. So, OK, I couldn't, but I just voiced my concern about how that was discrimination.

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DORNIN: You can see that actually was the headdress that she was wearing in the courtroom yesterday. We went -- we could not reach the judge. The police department in Douglasville says they are investigating it. But in the past, it has always been up to the discretion of the judge as to what attire people can wear in court.

Of course, the woman's husband is very upset. And they are looking into seeing whether they will file a lawsuit, because this could affect of other religious denominations that want to wear headdresses to court.

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OMAR HALL, HUSBAND OF WOMAN ARRESTED FOR HEADSCARF: We feel that we were not given fair and due justice. But, more than that, I'm concerned not only for my family, and my wife, and our Muslim community, but what has been done in Judge Roland's court, in Douglasville, says that nobody of faith who wears a turban, a kimar (ph) or yarmulke, or a habit, for a nun, can enter his court. So that is saying that nobody of faith can have any business in his municipal court.

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DORININ: We did speak to the Georgia attorney general's office. They say that there is no state law that deals with the attire in the courtroom. That it is usually up to the discretion of the judge. And of course, if they are filing something, it would be in federal court, because they would be talking about constitutional rights, whether their civil rights were violated.

PHILLIPS: Has this happened before, with anybody else?

DORNIN: Well, apparently, that is what they are concerned about was that there have been two other women, in the last two months, that say they had been thrown out of court by this same judge, for wearing the headscarves. Another one said that she was also arrested for contempt of court. The interesting thing is this woman was sentenced to ten days in jail, but then was released four hours later, no explanation given, at all. Just that, OK, you can go home.

PHILLIPS: Sounds like the judge needs to know a little bit more about the religious practices.

All right, Rusty, thanks.

Well, you may hear about the $50 billion investment fraud attributed to former Nasdaq chairman Bernard Madoff, and think there ought to be a law. Well there are lots of laws, and for years nobody made sure Madoff obeyed them. Here's CNN's Joe Johns.

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JOE JOHNS, CNN CORRESPONDENT (voice over): He was a Wall Street genius and pioneer, who once proudly proclaimed that there was no way to cheat on the Street.

BERNARD MADOFF, FORMER NASDAQ CHAIRMAN: By and large, you know, in today's regulatory environment, it is virtually impossible to violate rules when this is something that the public really doesn't understand. JOHNS: But now, Madoff, himself is accused of breaking the rules, big time. And the government never caught him until authorities say he admitted his role in an alleged fraud he estimated at an astounding $50 billion. So where was the sheriff of Wall Street? The Securities and Exchange Commission? Well, at first, officials said they were on top of the case.

LINDA CHATHAM THOMSEN, SEC DIRECTOR OF ENFORCEMENT: ... to bring everyone who is responsible for the conduct at the Madoff firm to justice.

JOHNS: SEC Chairman Christopher Cox says that his agency appears to have screwed up repeatedly and in a big way saying that "credible and specific allegations regarding Madoff go all of the way back to 1999", and that he is gravely concerned about multiple failures of the agency, and that he is launching an internal investigation.

So who were the whistleblowers? Securities executive Frank Casey for one. Back in 2005, he and a colleague Harry Markopoulos started to look at the gravity-defying investment returns and figured something was up.

FRANK CASEY, SECURITIES EXECUTIVES: And Harry said, Frank you know something is not right, it's got to be a fraud.

JOHNS: Casey says Markopoulos even took it to the next level firing off letter after letter to the SEC all but predicting how the Madoff story would end.

FRANK CASEY, FORTUNE USA: This is a Ponzi scheme, in giant letters. Thirty-six-type instead of 12-type. This is a Ponzi scheme, and he laid out 25, 28 if I can recall red flag areas that they need to investigate.

JOHNS: But Casey is not congratulating the SEC for finally figuring things out, because they got there too late. After all, billions of dollars apparently vanished through the doors of Madoff's office.

CASEY: The SEC is going to simply come in after the fact and clean up the bodies and the blood. And not prevent the hit. It doesn't serve any purpose.

JOHNS (on camera): It is not the first time that the SEC has been slammed for oversight in the last few years, but now some critics are saying that the case of Bernie Madoff just might turn the place inside out. Joe Johns, CNN, Washington.

(END VIDEOTAPE)

PHILLIPS: All right. So joining me now with more from the investigative front Harold Copus, former FBI special agent and now a security consultant here in Atlanta, and what is interesting that you and I talked months ago and you said, Kyra, just wait, you see how many more people you will see embedded or embroiled in corruption, and we talked about the SEC and the fact that it lacks in what it is supposed to do and when it is involved with big money, a lot of things slip through the cracks.

HAROLD COPUS, FORMER FBI AGENT: Well, what happens is that when you get in bed with the people you are supposed to be regulating, we now see what happens. Absolutely nothing. And then you see what the disaster is, and that is what we are facing today.

PHILLIPS. All right. So what do you make of the head of the SEC. And Chairman Cox is saying, well, you know, there were signs and I don't know why they weren't checked in to. Is he an innocent bystander?

COPUS: Well, I'm not sure if he was an innocent bystander, but maybe working in another desk when this was coming up, and maybe not asleep at the switch, so the question is what are you going to do? Their biggest problem is just like with the FBI, they don't have enough funding, they don't have enough people to go out to do the work, so this is what happens.

PHILLIPS: But it says here that the SEC overlooked clues and tips for a decade. Is that true? Or did they ignore it? Did they overlook it? Did they miss it? I mean, how can you miss signs like that for a decade?

COPUS: Well, you can't really just miss it. What happens is that here is a guy they are supposedly investigating, but he has got this big power status, and surely he would not do anything wrong, so what we will do is to go after the small guys, always happens. Small guy, you know, he gets to jail for 100 years and a guy like that, he will be normally would be lucky to get two or three years, except for this time, they have got him wire fraud and everything else, he will never come out of jail.

PHILLIPS: And we are learning all these other little interesting things like today we learned that Madoff's niece actually married a former SEC attorney who was part of the team who looked into Madoff in 1999 and 2004.

COPUS: And we can't go back too far and I understand that and I see the problem there, but we really just don't know what he failed to do. I will tell you that the next shoe will drop will be civil suits are going to start flying in this, because people are going to start asking, who knew what and why didn't you do your due diligence before you asked me to invest in this.

PHILLIPS: There are a lot of people sitting at home thinking, oh boy, I'm so hosed right now.

COPUS: Well, totally, and common sense will tell you that it can't work, but the problem with common sense is that it is not common and that is what happens.

PHILLIPS: And once they see the money coming in, they sort of forget what common sense. How many other Madoffs do you think are out there, and this is sort of the tip of the iceberg, and people are coming forward and people are being held accountable? COPUS: Well, they are. It is the tip of the iceberg and what happens is as that Dow continues to drop, the more will be flushed out. I don't think we've seen the end of it yet.

PHILLIPS: Are there enough resources to do it?

COPUS: No, there is not. And that is the danger now.

PHILLIPS: Wow. We will keep following it with you. Harold Copus, thanks a lot.

COPUS: Thank you.

PHILLIPS: Well, Chad is up next to look at the winter weather and we have all kinds of things happening across the country, and he will bring you up to date.

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PHILLIPS: All right. Take the pick, ice, snow, rain, fog? Pretty nasty weather across much of the U.S. today. And these scenes are a bit much even for Chicago just a week before winter begins actually. A big storm added a layer of snow and ice across that city. Schools were shutdown, traffic was snarled at O'Hare International Airport. And in Michigan, similar scenes as the snow moved through. Heavy snow fell in Detroit, and other areas making the travel there pretty dangerous. Check out the scene in Arizona, something you don't see often. A lot of heavy snow there as well. Warnings of more snow in place in the state's higher elevations, too, and desert areas dun ear flood watch now.

And more than 30 middle and high school students in Indiana were taken to a hospitals this morning after the school bus slid off on an icy road and flipped over on its side. That bus was involved in a crash with a car. Authorities say that none of the injuries are life threatening. A school near Indianapolis was operating on a two-hour delay because of the icy roads. Chad Myers is keeping track of all that nasty stuff for us. That is pretty scary, because you think that school buses are supposed to be pretty stable.

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PHILLIPS: All right, Chad, thanks.

Well, you are horribly disfigured in an accident and you cannot even recognize the person in the mirror. Then doctors offer to give you somebody else's face? Well, a groundbreaking transplant surgery and it was performed in Ohio. We'll tell you about it.

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ROB MARCIANO, CNN CORRESPONDENT (voice-over): Old automobile tires that lose their treads are getting a new life by becoming something you can tread on. Kevin Bagnall's company KB Industries uses recycled tires to make FlexiPave, an eco-friendly substitute for concrete and asphalt.

KEVIN BAGNALL, K-B INDUSTRIES: A very strong material that you can even put an 18-ton vehicle over it.

MARCIANO: It is made up of ground up tires and mixed rocks and a secret bonding agent that helps keep it all together. Bagnall says FlexiPave is ideal for low traffic areas like sidewalks and parking lots and in extreme weather he says it won't crack or break.

BAGNALL: The extremities of weather from Arctic to equatorial does not affect this material. It is one big expansion joint. So, if the water freezes, it has got room to freeze. And also melt.

MARCIANO: And even with heavy amounts of water poured on it, FlexiPave lets it seep through.

BAGNALL: We are allowing that valuable resource, water, to go back into the earth. Instead of it going into the stone water drains.

MARCIANO: FlexiPave is more expensive than concrete, but Bagnall says that the future benefits outweigh the costs.

BAGNALL: If we paved a parking lot with this, there is no longer the need for storm water drain, and there is no longer the need for maintenance of cracking asphalt or concrete.

MARCIANO: Bagnall also plans to expand to other countries like Australia and Brazil.

BAGNALL: And I don't think for one minute we cannot restrict where it is going to go. It has global written all over it.

MARCIANO: Rob Marciano, CNN, Atlanta.

(END VIDEOTAPE)

(BEGIN VIDEO CLIP)

ART CAPLAN, MEDICAL ETHICS, U PENN: If you reject a kidney transplant you can get another one or a heart transplant, you can get another one, with a face transplant, if this fails, it is almost impossible to go and do another one. So you are in a situation now where literally if the thing is going wrong your face is sloughing off, falling off, and you will have to eat through a tube and have to breathe through a ventilator and my view is I'm not against doing this procedure and I think it is ethically justified, but you have to be ready to let the person die if they say they can't go on if this thing goes wrong. So that is up to and including giving them a lot of pain control that might kill them.

(END VIDEO CLIP)

PHILLIPS: Powerful words. That is medical ethicist Art Caplan talking us last hour about the incredible face transplant that the doctors revealed today. So many questions about that surgery. Let's bring in our senior medical correspondent Elizabeth Cohen. We have been following this second by second. It is fascinating on so many levels.

ELIZABETH COHEN, CNN CORRESPONDENT: It is fascinating. I think we have all become accustomed to if you need a new kidney, get a new kidney, but to be able to put somebody else's identity on you, in a way, is really quite incredible. So let's talk about what happened here.

The reason that the face transplant stands out is that it is not the first, because it wasn't, it is the fourth, but it was the first that was almost the entire face. Let's look at what the surgeons did at the Cleveland Clinic. This woman had some injury to that part of the face and they took it off and put on a new face from a cadaver. We don't know exactly what kind of injuries she had, but we know that is the procedure that she has had done.

We also know that because of whatever injuries she had, she is blind in one eye, and this transplant does not change that. She is still going to be blind in one eye.

PHILLIPS: OK. And it wasn't her whole entire face, it was just this part of the face. Has she seen it yet?

COHEN: No, she hasn't seen it yet. The surgeons were asked that at the press conference, but they did say this. Let's take a listen.

(END VIDEO CLIP)

DR. MARIA SIEMIONOW, RECONSTRUCTIVE SURGEON: I must tell you how happy she was when with both of her hands she could go over her face and feel she has a nose and she has a jaw, and she has a full face in front of her.

(END VIDEO CLIP)

COHEN: Now, this patient's identity is being fiercely protected. The doctors say she does not want to go public, but a sibling of hers did anonymously make a statement that the Cleveland Clinic presented to us. Here is what they said in the statement. "We never thought for a moment that our sister would ever have a chance at a normal life again after the trauma she endured, but thanks to the wonderful person who donated their organs to help another human being she has the chance to live a normal life."

Because Kyra, you can only imagine what is it like to have 80 percent of your face disfigured.

PHILLIPS: And her doctor, Dr. Siemionow said she was ridiculed and made fun of in public and imagine going through your life having to deal with that.

COHEN: Exactly.

PHILLIPS: But now here she is in a situation wondering, is that going to work? I mean, you heard -- it is, man, I can't imagine being in that position.

COHEN: Exactly.

PHILLIPS: But this is exactly the fourth patient ...

COHEN: Correct.

PHILLIPS: To go through this. So how is the first patient doing or the second or the third? What do we know about the other patients?

Well, we know the most about the first patient, she is a woman named Isabel Dean Warren and she did go public and we're going to see pictures of her in a second, there she is pretty soon after her transplant. Overall, she is doing well, however, there have been some serious bumps in the road. Twice her body rejected her face. Remember, this is a foreign body part coming at you, and she even at one point went into kidney failure.

We are told that she is fine now. But this is serious stuff. This not just like slapping somebody else's skin on top of your face. I mean, this is very different. You are introducing something that is foreign to your body, and she will be all of these patients will be on immune suppression drugs, anti-rejection drugs forever.

PHILLIPS: Yeah, we will definitely follow it for sure. Thanks, Elizabeth.

Well, as always, Team Sanchez is back there working on the next hour of NEWSROOM. Hey, Rick, what have you got going?

RICK SANCHEZ, CNN ANCHOR: This is amazing. Let me tell you a story. Young man is a junior in high school, and he is being recruited by Alabama, Mississippi State, Auburn, Oregon, every major school in the country thinks he is a fascinating man with a bright future, probably going to be a future star in the SEC. He's in Mississippi and one day he gets pulled over by police, and the Sheriff's Department there, and the police officer says he goes to the car and to call in some information and while he is on the radio this African American young man takes out a shotgun and kills himself.

We don't know if it was an accident, don't know if it was suicidal, but he is dead, and now the -- I was going the say the GBI, the MSI (ph), the Mississippi Bureau of Investigations is on the case, and they are taking it to a grand jury, and obviously a lot of stories going both ways. We are going to report it and look into it and we will have that story right here at 3:00. One that raises as you might imagine, Kyra, a whole lot of questions.

PHILLIPS: All right. See you if a few minutes, Rick.

SANCHEZ: All right.

PHILLIPS: Dangers of carbon monoxide hammered home by two separate incidents in the West. We are going to tell you why wintry weather ups poisoning risks.

(COMMERCIAL BREAK) PHILLIPS: Checking news across America now. Three young women found dead in their car in California apparently suffered carbon monoxide poisoning and they all worked at the Squaw Valley USA Ski Resort. A security guard found them inside of a running car at the employee parking lot. The tailpipe was blocked up with snow. Police think the women fell asleep and this was a total accident.

In Bellingham, Washington, 29 workers at a seafood warehouse we hospitalized for carbon monoxide poisoning. Police suspect that forklift fumes built up when the building's doors were shut against the cold. Carbon monoxide is colorless and odorless and signs of poisoning can include nausea, vomiting and headaches.

Please in Marion County, Oregon have arrested a second suspect in a small town bank bombing. He is the father of the bombing suspects already in custody. Two police officers were killed last week trying to defuse the device discovered at the West Coast Bank. The police chief and a bank employee were also injured.

And we are getting word out of Springfield, Illinois. The Illinois Supreme Court refuses to hear the motion to declare that Governor Rod Blagojevich is unfit to serve. We are talking about that might be a possibility when wondering what would happen to the appointment of the Senate seat, Barack Obama's Senate seat, and also who was going to step in as governor if indeed he was going to be impeached or if he was going to resign, but there was talk that possibly the Illinois Supreme Court may try to decide if he was unfit to serve. The Supreme Court now saying, nope, they will not hear that motion to declare him unfit to serve.

Oil prices have tumbled 70 percent since the summer and now OPEC is scrambling to contain the downward spiral with its biggest production cut ever. So will it work? And how will it affect consumers? Cnnmoney.com's Poppy Harlow has our "Energy Fix" from New York. Hey, Poppy.

POPPY HARLOW, CNNMONEY.COM: Well, Kyra, today, oil fell below $40 a barrel for the first time in four years. With oil prices as low as they are, these oil producing countries are losing billions of dollars a day, so they are trying to boost the prices and slashing today, 2.2 million barrels everyday in production which will start in January. That is on top of significant cuts over the past few months.

Let's bring in live an oil trader from right here in New York, and his name is Alex Kern and he makes his living betting on the price of crude. Alex, thank you for being here. I appreciate it.

ALEX KERN, OIL TRADER: Thank you.

HARLOW: Despite the announcement, oil is way down, closing at just above $40 a barrel today. It looks like OPEC's announcement really had no impact on the market, so what is the long-term of this?

Well, you cannot trade on OPEC. I think you have to play defensive against it. But I think that their reaction and what they were going to say they were going to do is pretty typical, pretty textbook, but whether or not they are actually going to cut doesn't have anything to do with what they are going to say. I really don't believe they will cut. I think that if you look at the storage numbers, it is not showing that they are going to, and I think that the market is actually finding its fair price for the first time in a very long time.

HARLOW: Yeah. Very different from the $147 a barrel we saw in July. Let's bring it home for the average American consumer who are looking at low oil prices and they say this is great, I'll save on filling my gas tank and heating my home, so what is the broader impact of the global economy, Alex, does this spark?

KERN: Well, here is the thing. Unfortunately that a lot of people were kind of locked into home heating prices in the late summer or early fall, so they are not really going to feel the benefit of this right away. Hopefully I guess kind of willing to roll the dice and hold on will benefit from it, because I do think that the heating oil is going to come down quite a bit. The margin between heating oil and gasoline is going to kind of shrink back in where it should be.

I think crude oil is probably headed under $36 by Christmas, probably by next week.

HARLOW: Really.

KERN: I really am very bearish, I definitely think it is headed lower. Your crack buyers and your spreads are coming back in line, it's starting to make sense again.

HARLOW: We will leave it there, Alex. But oil going down from here, Kyra, back to you.

KERN: Absolutely.

HARLOW: All right. Poppy, thank you so much. That does it for me right here in the CNN NEWSROOM. Coming up after the break, Rick Sanchez will take over from here.

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