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Oil Rig in Gulf of Mexico Sinks; President Obama's Heavy Push for Financial Reform
Aired April 22, 2010 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALI VELSHI, CNN ANCHOR: Okay. Breaking news continues here at CNN. The Deep Water Horizon, the oil rig operated by Transocean, has sunk in the Gulf of Mexico. It had continued to burn until the last.
We're on the phone with senior chief petty officer Michael O'Berry from the U.S. Coast Guard. We also have Tom Fowler with "The Houston Chronicle" who was speaking to us earlier and has been covering this story in great depth.
Michael, let's go back to you for a second. What do you do in an instance like this? There's oil going out into the Gulf of Mexico. Somehow we have to cap that. What's the series of events now that go into place to try and stop that oil?
MICHAEL O'BERRY, SR. CHIEF PETTY OFFICER, U.S. COAST GUARD: They'll probably -- once they can -- once the rig gets secure and it's safe, more likely you will see mower of those ROVs go down to assess it, probably to see what they've got on the ocean floor, and what is the best way to do that. We have skimmers that are going to be brought in. I know there were some disbursement planes that have already been on standby that can help with the some of the diesel.
The light crude is a little harder to clean up, but you've got the skimmers that are going to be in force. And as soon as the area is deemed safe enough to get those boats in there, they'll be en route.
VELSHI: All right. So we've got two things going on. We've got efforts dealing with the oil, as you said, up to 336,000 barrels per day that was coming out of that. So, we've got to figure out how much oil is coming out and how to stop it.
We're still looking for 11 workers unaccounted for who were stationed on that rig. We don't know whether they got away on a raft or where they are. The Coast Guard continues to look for them.
Tom Fowler, hang on for a second.
Let's go to Reynolds Wolf. He's going to tell us a bit about this area that we're talking about -- Reynolds.
REYNOLDS WOLF, AMS METEOROLOGIST: Absolutely. We're going to take you there right now. Let's zoom in if we can down towards parts of the Louisiana Coast.
And Ali, you're actually very familiar with this area. You were actually in this region back during Hurricane Gustav. We're going to go a little bit more to the southeast of that region. This is the location of the oil rig site.
And just to give our viewers a bit of perspective -- we can always need that perspective, and this is just mind-boggling. With the Exxon Valdez, we had 257,000 barrels of oil that were dumped into the Gulf of Alaska. In this situation, 336,000, so this is something that surpasses even that instance that took place a while ago. Again, the Valdez incidence, so certainly an amazing thing to watch.
Something else we're going to watch for you very carefully is what we can expect weather-wise in this region for the next couple of days as they try to stem the spread of this oil across parts of the Gulf of Mexico. And conditions are going to be tough over the next couple of days down in parts of the Gulf and the Gulf Coast itself.
We do have a front that's going to be moving through, and as it moves through, we're going to have an increase in our wind. The water's going to get churned up quite a bit over the next couple of days. So certainly something we're going to watch very carefully.
So, anyone who happens to be out there watching this, observing this from the skies above, is going to have a very difficult time. Also, the search for maybe some survivors on the platform, it's going to be very difficult for them as well. I would say especially in the next 12 to 24 hours, we're going to see a complete change in the forecast, the weather situation out just a few miles, again, not far from Louisiana.
We're going to give you more information as it becomes available. We're going to pitch it on to you. But let's go back to Ali for the time being.
VELSHI: All right, Reynolds. Thanks very much. Please keep us posted on anything you learn out there.
I want to go back to Senior Chief Petty Officer Michael O'Berry from the U.S. Coast Guard, and Tom Fowler, standing by. Tom and I were talking less than an hour ago, trying to get an update on what the situation is.
Tom, you study this very carefully. This is -- for all the dangers that you and your colleagues at "The Houston Chronicle" know well about rigs and the argument about whether they are safe or unsafe, this is not common at all.
TOM FOWLER, ENERGY REPORTER, "THE HOUSTON CHRONICLE": No, it's on not, actually, Ali. I just want to correct one thing that your reporter just said. It's actually 336,000 gallons, which is only about 8,000 barrels.
VELSHI: Gallons.
FOWLER: So this is nowhere near -- if this were spilling that, it's nowhere near Exxon Valdez. This is much smaller
VELSHI: Gallons per day. OK. Not barrels. OK. That's a very --
FOWLER: Yes, this is a much smaller incident. I mean, that's --
VELSHI: Forty-two galleons to a barrel. So would you say about 8,000?
FOWLER: That's right, yes.
VELSHI: All right. That's a very good distinction. Thank you for that, Tom.
Tell me -- this is just not common. You and I talked an hour ago to say attention has turned to safety on these rigs and the fact that we're probably going to see more of them out there. That's what President Obama has called for. Oil is still expensive. It's just not common to see this severe an incident on an oil rig these days.
FOWLER: No, it's not. I mean, a fire like this, this is pretty unusual. I think we have fires every couple of years, certainly fatalities. More of the accidents really that you see offshore are things like divers in the water drowning or helicopter crashes. This kind of stuff is very rare.
VELSHI: Typically speaking, a fire breaks out on a rig -- and, by the way, this graphic is from "The Houston Chronicle." They have great coverage on this to explain how that rig is above water.
This particular rig can sit in 8,000 of water, and then it can dig another 32,000 feet below that for oil. And increasingly, as oil becomes more rare, you have to go further out to look for it. That's the sort of work that you have to be involved in.
Michael O'Berry, let's go back to the workers for a second.
O'BERRY: Sure.
VELSHI: You operate, as we are grateful that you do, on the assumption that if there's a possibility that they're alive, you are going to search for them.
How long can they stay alive for if they're in a lifeboat?
O'BERRY: In a lifeboat, you know, it all depends on if they have equipment, and basically the weather and that type of thing. And what we look at when we look at probabilities, even if they're in the water, it depends on the size of the individual, his age, fitness level, weight.
It could be what kind of protective gear they were wearing. And one of the things -- and I think, you know, we're continuing searching for these folks, and I think one of the things we haven't addressed are some of the heroic actions of those boat crews the other night, because 115 people were brought home yesterday based on the efforts of those other boats that were out there. You know, the Coast Guard got out to help with medevacs, but 115 people were picked by some fellow offshore boats that were out there, and that's a pretty heroic act that they did as well.
VELSHI: What's your preparedness at the Coast Guard for this type of issue? Because as you said, we haven't seen this combination of things. I'm sure you've been called out to deal with things on rigs or accidents near rigs. This is unusual. You're firefighting, you're looking to rescue people.
What's the preparedness of the Coast Guard on this front?
O'BERRY: It kind of goes right into what we -- you know, multi- mission, multi-agency maritime. We kind of do it all.
And what's unique for us on this is each element has its own expertise as well. We have search-and-rescue capabilities, and the people doing that are focusing specifically on that.
Like I mentioned, the National Strike Force has been activated. They focus on pollution response. And those -- they're all flying in with teams to do this, and we also have investigative officers who are specially trained on how to conduct interviews and start to investigative a process and seeing how this all worked together. So, with those three groups, we're able to do all three at the same time, and do them all well.
VELSHI: All right. It would be very helpful -- this is whenever we have accidents like this, that people's minds first go to what went wrong and how do we make sure that doesn't go wrong again, and how do we make sure there isn't danger of that going on.
Michael O'Berry is telling us that there are tens of thousands of people who every day go into the Gulf of Mexico.
Stay with us. We're going to continue this conversation with these two gentlemen in just a moment.
(COMMERCIAL BREAK)
VELSHI: Continuing with our news that the Deepwater Horizon, the rig in the Gulf of Mexico, has sunk.
I want to go to -- we've got Tom Fowler with us. He's with "The Houston Chronicle." He follows this very closely. We've got Senior Chief Petty Officer Michael O'Berry from the U.S. Coast Guard.
Hey, Tom, I want to go to you. In your newspaper today you had a graphic that described, that showed what this vessel was. It's a drill ship. Is that the same as a rig?
FOWLER: Well, a drilling rig. People kind of use those things a little sloppily.
You know, when we say a platform, usually it's something that's actually producing oil. This wasn't really a ship. This was a platform that is moved around, and it actually drills in to find the deposits of oil and natural gas. They were done drilling at that point. They were actually getting the well casing, they call it, the steel pipe and cementing it in place. And then, later, you're supposed to move off from this site pretty soon after, and then they bring in a platform to actually start pumping the oil and gas out.
VELSHI: So, is this fixed to the ocean or this floats?
FOWLER: This particular one floated, and it used, like, you know, dynamic positioning, they call it. Basically, motors to -- you know, propellers to keep it in place. Some of them also use big mooring cables, but this one didn't use that.
VELSHI: Yes. OK.
Now, where are we getting the calculation of the amount of oil that could be leaking into the Gulf of Mexico? This is a drill ship. They weren't actually extracting oil, right?
FOWLER: No, they weren't. I think this is based on sort of what they -- sort of the rough calculation of the pressure of the reservoir that they were tapped into. And so I think, you know, once you actually start pulling, you could get more out of it. But that's just a rough estimate.
VELSHI: And that pressure is the issue. It's not that you have to suck the oil out of the ground. Once you tap it, there's a certain amount of pressure that is going to push that oil out.
FOWLER: Early on, yes. There's a heck of a lot of pressure in the earth. I mean, it's like putting into a balloon.
VELSHI: Much later in the life of a well, you then have to start putting water or mud in or things to get the oil out. Is that correct?
FOWLER: There's other ways, yes -- enhanced oil recovery. You pump in CO2, for instance. They do that on ground, on shore.
VELSHI: OK.
So, Mike O'Berry, this is what we're dealing with. We have a pressure issue. In other words, something is pushing fuel, we believe, into the Gulf of Mexico. And we've got this calculation that it might be 336,000 gallons of oil per day.
So there's two issues. You said you've got teams coming in who deal with the environmental aspect. You have got teams coming in who have to cap that well.
What else do teams have to do? Do you have to keep people out of the area? Is there some danger of this fuel in the area? Is there marine life you have to deal with?
O'BERRY: Yes, all of those. We'll obviously establish based on the trajectories where oil could go. We'll set up safety zones to keep people out of the area. So we'll have to enforce those with some of our law enforcement guys. And we work really close with our partners.
In the Coast Guard, there's a lot of supervisory roles. BP is the one that is going to be hiring the workers. They're the ones with all the equipment that is kind of brought in to do all this work.
The Coast Guard has the institutional knowledge and stuff to make sure that it's cleaned up appropriately. And BP will be the one bringing in all the equipment to make sure that happens.
VELSHI: And BP told us yesterday that they're sending seven oil spill response vehicles into the area. By the way, this rig would have been about $600 million. It is about twice -- the size of two football fields. This particular rig earned a safety award from the Department of the Interior last year which manages leases in the Gulf of Mexico.
Let me just ask you this, Tom. This company, Transocean, so here's how it works. Oil companies like BP, generally speaking, lease drilling and oil production equipment?
FOWLER: Yes. The rigs in particular, yes.
I mean, once you're doing production, you're more likely to own or co- own that asset. But, yes, you'll hire a company like Transocean to go out, and they've got the expertise in actually doing the drilling, and they'll work with other contractors to get the well ready for production. But it's going to be BP's geologists who are saying, OK, drill here, this is where we think the stuff is.
VELSHI: This rig has been inspected three times this year, including once this past month. No areas of concern were found. But what I have heard, Tom, from experts, they say that this is a --- something about a -- describe to mow what you think happened here. Describe that process.
FOWLER: Oh, gosh. It's all really speculative, but, you know, the thing we keep hearing is, on the ocean floor there's the thing called the blowout preventer.
VELSHI: Yes.
FOWLER: Basically, it's sitting right on top of the well itself, and it's designed basically to keep a big rush of hydrocarbons from coming back up the pipe.
VELSHI: And I was just going to say, our viewers can see that. It's in the middle of the screen, the caption is on the right side, the blowout preventer. Because you've got stuff going down, you've got stuff going up, you've got gas and you've got natural gas and you've got oil. All of that is involved.
FOWLER: Yes. So, basically, you could have a failure with any bit of equipment down there.
I mean, a couple of years ago, there was a bunch of -- one manufacturer had an issue with, you know, the quality of the steel in some of these things. It doesn't appear to be the case here, but there's so many different components that could have a failure issue.
You could have had a pump up on the surface fail that was keeping the pressure of the mud that -- that's flowing down there to keep the hydrocarbons at bay while you're putting the cement in. There's so many different variables where it could happen, but they were at the point where they were really getting the wellbore itself ready for production, which is, you know, putting big steel pipes down there, putting cement down there, and, believe it or not, you can do cement underwater. Letting it dry, and then doing more sections.
So they're in that process. And there's just so many moving parts where something could go wrong, one little piece of equipment.
VELSHI: Michael O'Berry from the U.S. Coast Guard, senior chief petty officer, let's just discuss for a second the safety measures that have to take place on an oil rig, because they're far from land, and if something were to go wrong, it takes a while sometimes to get response. So they tend to be self-sufficient, whether it's a rig or a platform or a drilling ship. They're pretty good about these safety drills.
Every shift gets a safety drill, I understand?
O'BERRY: Yes, they do.
VELSHI: And they've got all sorts of alarms. If there's something called a hot job, something that could cause an explosion or fire, there's firefighters on site all the time.
I remember the last time I was on a rig, and the helicopter landed, at the ready there were firefighters. They're ready there with the ability to hose something down.
So, what -- are you -- were you surprised when you heard there was an explosion or a fire on a rig that was not contained?
O'BERRY: Yes. It's -- as some would say, it's very unusual for this to happen out in the Gulf of Mexico. There's thousands of rigs out there, as I mentioned before. Thirty thousand workers a day go out there to work, and it's a very unusual occurrence.
They're well trained, as you said. They go through inspections and they go through safety drills, and they did a good job here. There's -- what's attached to this, too, is 115 of these workers have reunited been with their families, and that's a testament to their training and to those other boats that have come out there and rescue them as well.
VELSHI: And there were over 100 people, as you said, 126 who have been rescued, another 11 have not been. But there are a lot of people who work on each one of these rigs, platforms, vessels in the Gulf of Mexico. And it's hard to get back.
We're going to talk about the effort, what happened when the call came in that there was a problem on this, what the Coast Guard did, as soon as we come back.
Stay with us.
(COMMERCIAL BREAK)
VELSHI: OK. I'm here with Tom Fowler. He's an energy reporter from "The Houston Chronicle." And with Senior Chief Petty Officer Michael O'Berry from the U.S. Coast Guard.
Our breaking news is that the Deepwater Horizon, the drilling rig in the Gulf of Mexico that caught fire, burned for 40 hours, has now sunk. Eleven workers are still missing. The Coast Guard actively looking for those 11 workers.
Sort of a dual mission now. The Coast Guard, in a supervisory role over dealing with this rig and the hole and the oil that is going into the Gulf of Mexico, about 336 barrels -- gallons a day.
Michael, tell me what -- do you know the course of events? You've got a report that this thin was on fire? Did you get a phone call? How does it work?
O'BERRY: Typically, those rigs -- I know we got the call at 10:00 on Tuesday. The command center would have gotten a phone call either from the company. Usually we'll call. Because the company also hires the fire companies that come out to help put out the fire.
So, the company would have called us at 10:00 p.m. saying there's been an explosion, a fire. At that point is when we launched. We launched two helos from Air Station New Orleans immediately. We launched two helos from Mobile, Alabama, as well as a plane. And we got four cutters under way from where they were immediately to get out there.
VELSHI: And what happened? So you sent these -- you sent the cutter, you sent the helicopters. What are we saying, about 75 miles from New Orleans?
O'BERRY: Forty-five miles here.
VELSHI: Forty-five miles. OK.
O'BERRY: Southeast.
VELSHI: And so you get out there, and what were the reports?
O'BERRY: We got -- of course, it was the middle of the night, and it's dark and it's tough to see. And when we got there, we noticed that, you know, they had those work boats that were already on scene and had evacuated the members off of the rig. So, they were on those offshore supply vessels.
We lowered rescue swimmers. We actually had a corpsman out there. They started assessing injuries that are on board these boats and started conducting medevacs.
We came across -- the numbers are varied -- we had about seven that we classified as critical. Two got flown to Mobile, Alabama. The others were flown into New Orleans, where they were met by ambulance or hospital. And we did it all within a matter of hours in that first night.
VELSHI: And those supply vehicles are all over the Gulf, because these rigs and vessels and platforms have to be self-sustaining. So these vessels come out to bring food and supplies, so they're around.. And you said a number of them responded to this emergency?
O'BERRY: Yes. We got word there were more than 30 in the area by the time we got out there that night. And that's why earlier I classified those -- the men and women that were working on those rigs are heroes in this as well --
VELSHI: Yes.
O'BERRY: -- because it's 115, you know, lives that to this point that have been reunited with their families --
VELSHI: Right.
O'BERRY: -- because of their efforts.
VELSHI: Right. You bring up a good point.
Senior Chief Petty Officer Michael O'Berry.
Michael, you've been good about keeping us informed. Our viewers are very, very concerned about this. Can you please let us know as any new developments occur, particularly with respect to closing up that hole, the environmental concerns, and, of course, primarily those 11 souls who are not accounted for?
O'BERRY: Absolutely. It would be my pleasure.
VELSHI: Thank you.
Senior Chief Petty Officer Michael O'Berry, who has been keeping us informed about this, this whole time.
Tom Fowler is still on the phone. He's with "The Houston Chronicle."
Tom, a lot of concern here about how quickly and how effectively they're going to be able to cap that hole with the oil that is now probably going into the Gulf of Mexico.
FOWLER: Yes. It's a big question.
I mean, obviously, they've been having issues trying to get that equipment shut at the very bottom of the ocean. If they can't get those valves to shut, the alternatives they have are, for instance, drilling new wells to intercept that -- those wells, which would be, I believe, weeks, if that's the case.
So, if they can't get that equipment to shut, it's going to be a whole lot of spilling for quite a while. But that's hard to say. I mean, as he said, as the officer said, they've -- they made an attempt yesterday. It could be with the fire out today, it could be easier to reach down there. VELSHI: Tom, do you have any sense of what the ripple effect of this can be either on safety issues on other rigs, on the political discussion about more rigs, as President Obama has called for? Have you heard any ripples yet?
FOWLER: Well, some of the reports say -- in the industry, people -- it's a tragedy, but they don't feel like it would fundamentally change things. It's always been dangerous work. It's always been technically challenging work. I could see certainly folks would try to make hay with this in terms of saying, you know, do we want this thing kind of thing happening off of the Maryland shores or something like that?
VELSHI: They're already doing it on my Facebook page. There are concerns about --
FOWLER: I'm sure they are. Yes, I heard from folks this morning as well about it.
VELSHI: Yes.
FOWLER: That's true.
In terms of safety, just in a week from now we have this massive offshore technology conference here in Houston. Every year for a week you have all the great engineering geeks of the world descend here. And they talk about this stuff constantly. I mean, for decades they've been doing this.
I'm sure it's going to be a big topic again. But they're constantly looking at safety issues.
VELSHI: Tom Fowler, thank you for joining us today to give us some sense of what this all means. It's new to many of our viewers.
Tom Fowler is an energy reporter with one of the great newspapers of this country, "The Houston Chronicle."
Tom, we will be calling you back. Thank you.
All right. Our breaking news coverage continues. We're also going to be talking about this other story that we've been covering all day, President Obama's heavy push for financial reform, when we come back.
(COMMERCIAL BREAK)
VELSHI: OK. A big issue that we continue to cover here is President Obama went to Cooper Union College in New York. Not Wall Street, but close to it, to make his case for financial reform.
Now, financial regulation reform has passed through the House of Representatives in December. Now there's a bill similar to it going through the Senate, and the president is pushing that this gets passed.
It would be sort of the biggest add-on to rules since the 1930s, since after the Great Depression, and some people think it is overdue, it is necessary, it's what has to happen. And let me just give you a little bit of what's in it.
The government wants to help troubled institutions fail responsibly. Put another way, eliminate the "too big to fail" idea. Let banks and financial institutions fail if they have to without taking the entire economy down with them.
Limit the types of risky investments that banks take. Shed some light on derivative trades. Create a consumer financial protection agency. And give investors more say in executive pay.
I'm joined by two people who know a lot about this. Robert Lenzner is a columnist with "Forbes" magazine and he studies this like nobody I've ever seen. Peter Morici is an economist and professor of international business at the University of Maryland.
Peter, for my audience who may not have been following this the whole time along and doesn't know the details of what's in or not in there, what do you like and what do you dislike about what the president is doing?
PETER MORICI, ECONOMIST & PROFESSOR, UNIVERSITY OF MARYLAND: Well, I like the consolidation of consumer protection into one place, although I want to be sure that the consumer protector is not so independent that the balance of solvency of banks, because stockholders have not been well protected, just like consumers lately, that that's balanced. I like the consolidation of bank regulators. We had do many of them.
I do think that as a systemic regulator, strengthening the powers of the Fed is useful, though I would point out in the recent crisis, the Fed didn't use all the powers that it had. So, I think those things are good, and I'm for that.
I'm not against changing the regulations. I don't that we need more. We need to refashion them and make them better.
VELSHI: All right.
Robert, what do you think? What do you like, what do you not like?
ROBERT LENZNER, COLUMNIST, FMR. NATIONAL EDITOR, "FORBES": I agree with him. There was one thing we didn't mention the first session, which is that there's going to be a tax on the major institutions, the president said, that will set up a fund so that if anybody has to go out of business, there won't have to be another huge government bailout as there was with AIG. And this he definitely stressed.
VELSHI: But this has caused some consternation, right? So, some people think, that's good planning. Put aside a whole lot of money so that we don't have to go into the public purse, except it is public money, and some people read that, Bob, to say that's an invitation to take risky bets and possible fail. No?
LENZNER: No, no, no. I think the other way to look at it is what everybody's very upset about is the huge compensation of the Wall Street executives.
So, instead of you making $40 million a year, let's say that a big chunk of that, of the earnings of the firm, is going to go into a fund to protect Wall Street against having the government have to come in and bail out all these institutions for hundreds of billions of dollars. So, they -- what they want to do is reduce leverage, add capital requirements, limit the amount of crazy risk that they take, letting the shareholders have more power.
The problem with that is that it's only a recommendatory power. It's not binding about --
ALI VELSHI, CNN ANCHOR, CNN NEWSROOM: And that particular issue, Bob, gets hotter and colder depending on the season.
LENZNER: Right.
VELSHI: You know, I know people don't like when I say it, but that wasn't really the cause of the collapse of the financial system, the other ones are bigger.
LENZNER: It really would be better if it wasn't even in there in my opinion.
VELSHI: It certainly does muddy the waters a little bit.
LENZNER: We just concentrate on the aspects of getting a much firmer hand on what these firms are doing, and make sure that they cannot endanger the system.
VELSHI: Right.
LENZNER: For instance, the president particularly mentioned AIG for using derivatives in such a way that nobody understood what was going on.
VELSHI: Yep.
LENZNER: It was totally unregulated. We cannot allow it to happen.
VELSHI: And this is the question, Peter. So, here's the thing, those are the derivatives, the credit default swaps, AIG writing insurance, basically, that wasn't actually governed like insurance. If it were insurance, they would have had to keep enough money on hand so that if there claims made against it, they could pay it. But they let everybody who wanted to bet on the failure of the mortgage market, on the failure of people to buy their mortgages.
That would strike me as a fantastic example of a bad derivative that should have been regulated. And you, in the previous discussion s we had, cited very good ones. The kinds that allow farmers to hedge on their seed prices or their product sales, the kind that allow airlines to hedge on oil prices. How do we make that decision as to what we regulate and how we regulate it?
PETER MORICI, PROF. OF BUSINESS, UNIV. OF MARYLAND: Well, it's important to recognize that we have something, like, $600 trillion of derivatives out there. And the global economy, all the GDP, of all the countries together, is only $100 trillion.
VELSHI: OK, so wait a second, you got more trading and betting on stuff than there is an entire world economy?
MORICI: Five times more.
VELSHI: Is that like sports betting? In other words-
MORICI: Exactly.
VELSHI: -there's more betting than money in the industry.
MORICI: That is what is going on here. You have synthetic betting. It is like two guys sitting in the stands watching the Yankees and the Red Sox and neither of them own the team or have any skin, and they just bet on it. If we would require there was collateral behind each derivative, the guy that has to pay out, have a third of what you need to pay out --
VELSHI: Right.
MORICI: a-if prices fall because, after all, housing prices fell 35 percent. Believe me, you would have a lot fewer derivatives and the scale would be smaller.
VELSHI: So, you're OK with that. You are OK with putting in rules that cause you to have some skin in the game, so you can't just bet on anything you have nothing to do with?
MORICI: No, that's a different issue. What I'm saying is we need to have much more collateral posted, when someone writes an insurance policy, that they can pay out. Just as we do with casualty insurance or life insurance. At AIG they had very little collateral to back up a decline in housing prices.
LENZNER: They had none.
MORICI: When those CDOs fell in value. If we had much more of a requirement that way, we'd have many fewer derivatives and a lot of the other problems we're talking about would become more manageable in size.
VELSHI: If I wanted to give an example that my viewers would be able to relate to, would you both agree that the Federal Deposit Insurance Corporation, the FDIC, which was an old regulatory body, started right after the Great Depression, to prevent banks from failing or to deal with people losing their money in bank failures, would you argue that that has worked relatively effectively?
LENZNER: Yes, I would.
MORICI: Well, not as effectively as we'd like because it's run out of money. There are 8,000 regional banks and essentially the FDIC is on a lifeline. You know, the president was rather disingenuous today using that as an example. Also there are other examples of legislation that was considered Draconian and passed and absolutely failed, Sarbanes/Oxley. I mean, the SIBS, these offshore vehicles that banks had were largely accounting frauds.
VELSHI: Bob, you seem to think the FDIC works fine.
LENZNER: He was referring to it for what it did in that period, which was that it assured ordinary Americans that their savings in a bank would be protected in case that bank went under. Because in the '30s there was a run on banks. Many, many, many banks closed. Now, one of the problems about why there was so many regional banks that had to be taken over by the FDIC is because of the excesses in the system. And what happened as the bad real estate loans worked their way through the system. They want to put in safeguards here, we don't know exactly how they are going to work, so this won't happen again.
MORICI: Those safeguards are very vague. They just basically say they are going to limit risky activity. Most of the regional banks that went out of business did so by basically making a big loan to, say, a shopping center. It was an elephant on their balance sheet and it failed. Or they sold it off and they bought commercial, mortgage- backed securities.
VELSHI: Right.
MORICI: Banks shouldn't be buying securities other than stuff with pictures of presidents on it.
(LAUGHTER)
MORICI: Well, that-basically Treasuries. And this legislation doesn't require it.
VELSHI: OK, Bob, last word to you.
LENZNER: We don't know yet actually. We don't know the details of the legislation yet.
VELSHI: There's still a version in with the Senate.
LENZNER: We don't know the details. They've got to do something about restricting leverage. More capital requirements for everybody.
VELSHI: Yes.
LENZNER: And we don't know what those details are. Let's hope they are stiff enough to prevent a crisis again.
VELSHI: That's why we're having this conversation so my viewers can understand this and anybody who feels like it can write in and tell me what you think on Twitter. Or you can talk to your congressman about it, or your senator.
Guys, thanks a million for joining me. Robert Lenzner from "Forbes" magazine, Peter Morici, from the University of Maryland, you have really shed a lot of light on this. I appreciate it. We are also going to keep you on top of the other breaking news story that we have and that is that the Deep Water Horizon, that drilling rig, in the Gulf of Mexico has sunk. Eleven workers are still missing. The Coast Guard now has two issues on its hands, dealing with the fact that there's oil gushing out of the hole the drilling rig was drilling into, and continuing to look for those missing workers.
We're on top of that, and we'll bring you more on that when we come back.
(COMMERCIAL BREAK)
VELSHI: Let me start by giving you a check of some of the headlines. We've got some breaking news. The Coast Guard says the oil rig that burning in the Gulf of Mexico has sunk. They're still looking for the 11 workers that have been missing ever since Tuesday night's catastrophic explosion. Oil is believed to be leaking from the rig right now, from the hole in the ocean floor, at a rate of about 8,000 barrels per day.
In Germany a Catholic bishop accused of child abuse has offered to resign. Walter Mixa, the bishop of Augsburg is accused of hitting children in his care and misusing orphanage funds. That is according to a German TV station. Pope Benedict has not responded to that offer. The pope today did accepted the resignation of an Irish bishop who took responsibility for not doing more to stop priest abuse in the Dublin Archdiocese.
The Carnival Cruise ship Ecstasy is back in port after a sudden turn to avoid a drifting buoy. The sharp turn injured 60 people. The ship listed 12 degrees to the right on Wednesday afternoon, to avoid the buoy, which a spokeswoman says did not show up on its radar. About 2,300 people were on board.
And where is he? No, he's not there. Ed Henry, we'll visit with Ed Henry. I think he's at the New York Stock Exchange. So, give us a break and we'll come back and Ed will tell us about regulatory reform. And what he's doing in New York.
(COMMERCIAL BREAK)
VELSHI: This is kind of like me doing a report from the White House. This is where I used to spend my time.
ED HENRY, CNN SR. WHITE HOUSE CORRESPONDENT: We're, like, trading places. In fact, I found this at the CNN booth here, so I decided to bring it down, you know? Keep my pal Ali down here with me, maybe teach me a little something about covering business.
VELSHI: Yeah. I love it down on the stock exchange. Ed's there. This is "The Ed Henry Segment", our senior White House correspondent.
HENRY: What I always wanted to do was pick up one of these. I mean, do people still use these?
VELSHI: Yell "trade." HENRY: Trade!
VELSHI: When I worked there people used to-they used to throw, it was all written and the floor would be full of stuff. This is actually nothing, if you look at the floor, it's not that much compared to what it used to be.
HENRY: Do you want to know why? It's take your son or daughter to work day, even though President Obama, what everyone here was talking about was bringing their kids here. And since they don't throw the paper around anymore they decided to do it today just for the kids' sake.
VELSHI: I was going to say, that looks like more. It's all electronic now.
HENRY: It's all electronic, and all that, so all this paper is really for sure, but it's for fun. The kids are here and they get to sort of live vicariously through their parents. And see how they do this-I mean, the history here, I've met so many characters just in a short amount of time. Guys who have been here forever. Jim McGwire, I'm sure you know, 80 years old.
VELSHI: Yes.
HENRY: Said he started here when he was 18. He said he was stupid then and he's still stupid, but I think he was joking because he's pals with Warren Buffett, and anyone who is pals with Warren Buffett, is not that stupid.
VELSHI: What are you doing there?
HENRY: Well, I decided, I'm going to give you some substance. President Obama was just down the street, obviously, talking about Wall Street reform. And we wanted to get some reaction from traders here. And we've been talking to people all afternoon.
What's interesting is a lot of them are saying, look, fine, more transparency is good. And some of them told me, you know, Wall Street's being beaten up month after month, and we want to kind of turn the page on it. And we realize we have to change some things. But a lot of these guys are telling me in private, as well, no matter what you change, at the end of the day people still have to follow the rules here. And people in Washington have to enforce the rules.
And there are already some rules in place and people were just not following them. And there's no clear evidence yet that even if reforms are put in place that it's going to stop bad behavior. So, I think there's still a lot of unanswered questions here, but people here are sort of frustrated with how much they've been beat up on. They're frustrated that some of their colleagues did the wrong thing as well, obviously. It's not that just that they have been picked on. Let's be clear about that. So we decided to get a little flavor of everything down here and I figured I'd come back to Ali's old place.
VELSHI: It is a lot of fun. Those guys are diehards. Look, when you're mad at the financial system, often the folks down on the floor are not -- are not them. These guys are hardworking traders. They're sometimes second generation.
HENRY: You know what I wanted to tell you is that I also ran in to a trader, you won't believe this. His name is Brian Dolan, and I went to high school with him.
VELSHI: Really?
HENRY: Twenty years ago, St. John's the Baptist in West Islip, New York .
UNIDENTIFIED MALE: Small world.
HENRY: Right here in New York. And he's here. He's a trader.
What did you think of the president's speech?
UNIDENTIFIED MALE: I'm nervous on TV.
HENRY: You know, he was a lot more of a verbose in high school. This guy used to get in trouble in class, that's what I remember, actually. And he probably didn't think I was going to amount to anything. And frankly, I didn't either. I didn't think I was going to amount to anything. I wasn't sure you were going to amount to anything because you were always goofing off in class, is what I remember. But now you're not telling me anything. Tell me about the speech.
UNIDENTIFIED MALE: I got good grades. I got good grades.
The speech, he's just talking about the same rhetoric, you know? He's - wants in for something. And he's going to jam it down everyone's throats.
HENRY: Well, do you think it's going to change anything down here?
UNIDENTIFIED MALE: I think the rules are in place pretty much, you know, to watch the market itself.
HENRY: Yeah. And so do you think that people here are pretty frustrated that they've been beat up for a long time, and they're thinking that Washington's just kind of picking on them?
UNIDENTIFIED MALE: Well, the game has changed. Electronics, the technology has changed the game, the way it's traded, and all the rules are already pretty much in place in my opinion.
HENRY: Well, Ali, you heard right there from Brian Dolan, a high school classmate of mine 20 years ago in New York. Obviously seems a little frustrated with some of the rhetoric from Washington.
I got to tell you, I really like being down here, Ali, I hope it is not awkward. But I was wondering when you got that big anchor title, you gave up the chief business thing, right?
VELSHI: No, I got it, too. I'm still the network's chief business correspondent.
HENRY: Oh, well, then I wont' ask for-a
VELSHI: What, am I not working hard enough?
HENRY: No, no, I think you work really hard. I just wasn't sure.
VELSHI: Yes, no, I still got it.
(LAUGHTER)
VELSHI: But it is-what Brian is hitting on a very interesting point. There are two issues here when it comes to financial reform. One is, do we need some new rules to deal with some of the complicated stuff that most of us can't get our heads around? Or do we need more police to actually deal with the rules that are there that have not been enforced? A lot of people think why not just add more cops and watch the crime rate go down.
HENRY: And that's what I think the president was trying to do more than anything today was to try to find that balance. While people here do feel like they've been beat up upon and the president has called some folks on Wall Street fat cats over the bonuses and whatnot, today he was not using that rhetoric. That was significant about today, because the president realizes, number one, he needs to find a balance here, in what you're saying.
And secondly, and when I talk to senior white house people, they say, look, they think they're this close to a big victory on this reform, so there's no point in sort of picking on people. It's better to try and bring folks together and say, look, you may think this is going a little far, but there should be some kind of new rules for the road. It is not going to be perfect. Some people on the Left who think it has already been watered down. But the president was trying to make the case that there should be some new rules of the road. Here we are, this fall, will be two years since Lehman Brothers went down.
VELSHI: Right.
HENRY: That whole melt down and Washington hasn't really done anything since.
VELSHI: Yes, and there are some who fear-I mean, some people think, and I've always made the case that you don't want to be legislating or regulating while you're angry about something, it may make you overreach. But the further you get away from the meltdown, the less momentum there is to actually fix the problem.
HENRY: That's right. It's kind of cool, too, because I guess I could just wander around, I've been kind of static because I'm used to being at the White House. But you can just walk around.
VELSHI: Oh, yeah.
HENRY: Ali, you had the life here. Why did you leave it? VELSHI: It really was fun. It really-I miss those days. You're making me jealous. You know what I'm going to do, I'm going to just show up at the White House one day, when you're off.
HENRY: By the way, where are the keys to your apartment? I went over there I didn't have the keys. I was knocking and Richard Quest was there.
VELSHI: I would say something like it's under the mat, but the danger of that, of course, is we're on TV and I really don't want to tell the entire world where the keys to my apartment are.
HENRY: You don't want to tell everyone where the keys are. All right.
VELSHI: Good to see you, my friend.
HENRY: Good to see you, Ali.
VELSHI: Say hi to my folks down at the New York Stock Exchange, on the floor there.
HENRY: I'll say hi to your peeps.
VELSHI: It is a fun, fun, historic building.
HENRY: It is.
VELSHI: Good to see you there. We'll talk to you tomorrow.
HENRY: Thanks, Ali.
VELSHI: Ed Henry, on the floor of the New York Stock Exchange.
Listen, today the world is celebrating Earth Day, and our own special way on this show, you'll walk away with something you may not have known before you watched. We're going to debunk some green myths.
Here's one of the myths, car air-conditioning wastes energy. Yes or no? I'm going to debunk it after the break.
(COMMERCIAL BREAK)
VELSHI: It's Earth Day today and in honor of Earth Day, before the break, we talked about the myth that car air-conditioning wastes energy. Don't sweat it too much. According to "Consumer Reports" running the AC will decrease performance by two to four miles per gallon but it all equals out when you go at higher speeds. "Consumer Reports" tested a Toyota Camry at 65 miles an hour and found out that AC burned only slightly more energy than having the windows open, because having the windows open increases drag and ruins your fuel efficiency.
So, the magazine's advice, do which ever one makes you comfortable.
Speaking of fuel efficiency, what if you could create tomorrow's hybrid from the shells of yesterday's gas guzzlers. A company called ALTe out of Michigan has a way to do that and expired warranties aren't a problem for them either, they are actually a preference. Jeff Defrank is the co-founder and chief technology officer for ALTe. He's joining us live from Farmington Hills, Michigan.
Jeff, good to see you. Thanks for being with us.
JEFF DEFRANK, CO-FOUNDER, ALTe: Good to see you, too. Glad to be here.
VELSHI: All right. So, in very simple terms, non-technical terms. Tell me what you are talking about. You take old cars-what kind of old cars, what kind of shape do they have to be in? Who do you get them from? What do you do? What does it cost? Tell me all that.
DEFRANK: We're looking at light commercial vehicles like pickup trucks and vans. And we'll take those things that are about five to 10 years old, and so they are newer vehicles, and maybe they are off warranty so they have between 36,000, 50,000 miles on it. But they still have a bit of life left. You know, oftentimes these commercial vehicles will run for 200,000 miles plus.
VELSHI: So, you're taking these vehicles and changing them from what, diesel or gas engines into what?
DEFRANK: Most of these will be gas engines because it is in the light commercial vehicle space.
VELSHI: OK.
DEFRANK: And we're turning them into a range-extended electric vehicle. So you'll drive most of the time on electric power. And when the batteries run down a bit, you'll have the gas generator on board to generate the electricity to charge the batteries back up. So, theoretically you could keep driving forever as long as you have gas, or you could plug it in at night and conserve energy that way.
VELSHI: OK. So you're taking a vehicle that would get what average fuel mileage and turning it into what?
DEFRANK: So, typically we're looking at 15 miles per gallon. And we're turning it into a vehicle that will get 25 miles per gallon up to, depending on your driving style, 40 to 60 miles per gallon. And, you know, if you drive, let's say, 40 miles a day, you would get actually never have to use any gas at all. So, it really depends on how far you drive and when you plug it in at night.
VELSHI: And what does this cost?
DEFRANK: The cost is around $30,000 for the conversion.
VELSHI: So, that's why you're doing it with fleets, largely, because it may not be worth it to the individual, but if you got 50 or 100 vehicles, and you're doing it with that, the combination of the -- well, the gas savings is going to help you a lot. DEFRANK: Right, a fleet can pay this off. The typical payoff is about 75,000 miles, and so a fleet can pay that off in one to two years, depending on how many miles a year they drive each vehicle. Consumers don't drive near as many miles, so the payoff period is a lot longer. You still get a pay off but you have to wait a long time.
VELSHI: Not 75,000 a year, you have to have 75,000 miles left to drive that car, that vehicle?
DEFRANK: From the time we do the conversion, in 75,000 miles, you'll pay the system off.
VELSHI: That's three or four years of a commercial vehicle?
DEFRANK: That, yeah, typically three or four years at most. Oftentimes there's commercial vehicles that will drive 40,000, 50,000 miles a year.
VELSHI: How is business?
DEFRANK: Business right now, we're still in the development phase, but things are really good. There's a lot of interest. We have a lot of fleet companies that have been coming to us and talking to us from, you know, different areas, power companies, a lot of delivery vans. You know, even people that have plumbing businesses have been coming to us and saying, hey, we're really interested in this. When can we get it?
VELSHI: When will you be up to scale and doing it for companies?
DEFRANK: We're going into mass production, our start of production is the end of calendar year 2011. So, it's going to be about a year and a half.
VELSHI: All right. And these are kits, basically? When you say mass production, you're building something that goes into a car?
DEFRANK: Exactly. We're building a kit, in our factory, and then we're going to send these kits to a nationwide installer. So, we've talked to, like, big-box retailers and dealerships and I can't name names right now, but we have over 200, 300 locations around the country that will be installing these for us. That way you just bring your vehicle to the local --
VELSHI: Yeah.
DEFRANK: -- installer and do it there. You don't have to send it anywhere.
VELSHI: Love it. What a great big idea. Jeff, thanks for joining us. We wish you luck, and I think it's going to help -- going to help the environment. Going to help us save some money. I hope it does well for you.
DEFRANK: All right. Thank you. VELSHI: Good to talk to you. Jeff Defrank is the chief technology officer and co-founder of ALTe. What a neat idea. We'll continue to bring you issues like that on this show, great ideas that would change the way we do things around here.
All right. Airlines have requested certain exemptions from tough, new rules that go into place on Monday. Those are those rules that fine airline that keep you on the tarmac for more than three hours. I can't say I'm unhappy about that. My "XYZ" is coming up next.
(COMMERCIAL BREAK)
VELSHI: Time now for "The XYZ of It".
The Transportation Department has denied a request from five airlines that were looking for a temporary exemption from new rules limiting how long they can keep us stuck on a plane on the tarmac. The new rules will slap big fines on airlines for long delays. Transport Secretary, Ray LaHood, says this is an important consumer protection and it should go into effect as planned on April 29th. The April -- the airlines say they should be exemption until JFK's airports in New York, well the main runway is currently under construction. They want an exemption until it reopens in December. They say if the rules go into effect, they have to end up canceling flights to avoid delays and paying a $27,000 per passenger fine. The government says no dice. They say airlines can minimize delays by rerouting or rescheduling flights at JFK to allow the other airports -- the airport's other three runways to absorb that extra traffic.
I've got to say, good for you. Enough of the whining and threats. I sometimes spend more time on airplanes than I do with my own family. I don't hate the airlines. I love them, they do a lot of good for me. I fly every single week, and I, like you, have a right to know that I'm not going to be held on planes indefinitely. And so do you. Airlines, you knew this was coming. You got to get your business in order and get those planes off the ground in a timely fashion. We'll fix what has to be fixed, but you've got to stick to the rules.
That's my XYZ. Drew Griffin sitting in for Rick, on RICK'S LIST.
