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Papers Detail CIA-Libya Link; Tracking Tropical Storm Lee; Slow Recovery in Paterson, New Jersey; Palin in Iowa for Tea Party Rally; From Dog Pound to Disaster Zone; East Coast in Recovery Mode; Recession Proof Budget; NYC Gets Ready for Fashion Week; Spending on Schools

Aired September 03, 2011 - 15:00   ET

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

ALINA CHO, CNN ANCHOR: It's 3:00 p.m. on the East Coast. Hi, everybody. Thanks for joining us. I'm Alina Cho. Our top story this hour, tropical storm Lee is starting to hit the Gulf coast right now. High winds have knocked out power to thousands in the southern parts of Louisiana and Mississippi. Heavy rain is flooding roads. There are reports of water reaching some homes.

We're going to take you live to the Mississippi coast in just a few minutes.

Vermont is one of the states still cleaning up from Hurricane Irene. Nearly 700 Vermont homes and businesses were still without power as of this morning. Dozens of searchers continue to look for a man believed to have been swept away by floodwaters last Sunday.

Dozens of families across Texas and Oklahoma have lost their homes to wildfires. In Oklahoma City alone, fires destroyed 25 homes just this week. And, in Texas, crews are still battling 14 separate wildfires. They have been making some progress, but a weather system is expected to bring high winds to Texas to tomorrow, and that could turn the embers back into flames.

Turning to politics and Sarah Palin's latest appearance in the critical early voting state of Iowa. The former Alaska governor and former VP candidate was a keynote speaker at a Tea Party rally in the first in the nation caucus state. She didn't use the rally to declare her presidential bid, but she definitely sounded like a candidate. Watch.

(BEGIN VIDEO CLIP)

SARAH PALIN, FORMER ALASKA GOVERNOR: Candidate Obama didn't have a record while he was in office, but President Obama sure does, and that's why we're here today. Candidate Obama, he pledged to fundamentally transform America, and for all the failures and the broken promises, that's the one thing that he has delivered on. We've transformed from a country of hope, to one of anxiety.

Today, one in five working aged men, they're out of work. One in seven Americans are on food stamps. Thirty percent of our mortgages are underwater.

(END VIDEO CLIP)

CHO: Congresswoman Gabby Giffords is spending Labor Day Weekend in her home state of Arizona. She arrived in Tucson yesterday, taking a brief respite from rehab therapy in Houston to spend time with family and friends.

It is only the second time Giffords has returned home since being critically injured in a shooting back in January.

The fall of Tripoli is giving the world a look into the once secretive way the Libyan government did business, including deals allegedly made with the United Kingdom and the United States. Now, I'm talking about a treasure trove of documents left behind when Libyan officials were forced from Tripoli.

Our senior international correspondent Ben Wedeman has seen these secret papers. Ben, I know you were looking at them with a flashlight. Tell us what you saw.

BEN WEDEMAN, CNN SENIOR INTERNATIONAL CORRESPONDENT: Yes, we were in the basement of the Libyan External Intelligence Agency, essentially the Libyan CIA. And what we saw were files of correspondence between the head of that Libyan intelligence agency and, among others, Porter Goss, who in 2004 was the head of the CIA.

It documents a developing relationship between the two intelligence agencies after Libya renounced its program for the production of weapons of mass destruction. It talks about the - what's known as extraordinary rendition. Basically, the United States would hand over to Libyan intelligence suspected Islamic militants, members of al Qaeda. They would give the Libyan intelligence people a list of questions they wanted asked of these prisoners.

And, of course, the understanding, according to human rights watch activists, was that they were handing these people over for them to be tortured by the Libyan security services in a way that, of course, is illegal under American law. And this was just the beginning of a relationship that continued for quite some time. In fact, it's rather ironic that year after year, the U.S. State Department and its annual report on human rights around the world would focus on Libya's violations of human rights, while, at the same time, another branch of the U.S. government was essentially involved in those violations - Alina.

CHO: Ben, I know that you've been working your sources over there. Has there been any reaction yet from the U.S. government or from the British government on this?

WEDEMAN: Well, from the CIA, we've heard from a spokeswoman who would not comment directly on these particular documents, but she did stress that the American intelligence community works with other intelligence agencies with the goal of protecting American citizens around the world.

And that's really the - the rationale for this program of extraordinary renditions, a program that for years has been harshly criticized by human rights activists because it essentially was the Americans handing suspects over to intelligence services in Libya, in Egypt, in Tunisia, in other countries with horrendous human rights records. But they certainly used methods that the Americans didn't want to engage in directly.

CHO: Ben, I see that traffic in the background there. I mean, it - it's extraordinary to see it almost looks like business as usual in Tripoli, and the rebels, this comes as the rebels give Gadhafi yet another deadline to surrender. Is there any indication that that might happen?

WEDEMAN: Well, what's going on is there are just a few strongholds left that are marginally loyal to Moammar Gadhafi, and what the rebels would like to do is avoid a bloodbath, avoid a battle where people from both sides will die. What they're doing is under the table, sort of away from the attention of the media.

They're in contact with people in the towns like Bani Walid, Sirte and Seva (ph), the three last three strongholds of Gadhafi loyalists, to convince them that there's no point in going on supporting Moammar Gadhafi, that clearly the tide has turned, the capital is in the hands of the opposition and that they'd do much better to simply surrender rather than fight in a losing cause.

CHO: Senior international correspondent Ben Wedeman, live in Tripoli for us. Great reporting, as always, Ben. Thank you very much.

I want to go back to our top story now, that Tropical Storm Lee, which has much of the Gulf Coast on high alert right now. It's coming just one week after Irene slammed the East Coast.

The tropical storm is closing in on the southeast. The rain has already started along the coast. Winds have knocked out power to thousands of people.

CNN's Ed Lavandera was in New Orleans this morning. He since moved a couple of miles east to Bay St. Louis, Mississippi. Ed, give us a sense of what's going on where you are right now.

ED LAVANDERA, CNN CORRESPONDENT: Well, we're kind of monitoring situations like these. This is some of the low lying area here in Bay St. Louis, just east of New Orleans.

Of course, a lot of people probably remember this town from - during Hurricane Katrina. This town was leveled, under 30 feet of water. This is obviously much different from that and many people who live here just aren't quite impressed by a tropical storm of this magnitude.

But, nonetheless, people are monitoring these situations. Low lying roadways that fill up quickly. The water here is starting to dissipate a little bit, but we - speaking to a family who lives just down the road, they said earlier this morning they had thigh high water down there.

So these are situations that keep popping up throughout various parts of the Gulf Coast here in Louisiana and Mississippi, even into Alabama and the - the western panhandle of Florida as these rain waters from Tropical Storm Lee start moving inland.

The concern isn't just along the Gulf Coast shoreline, where we are, just a few miles away. It's really now starting to move inland as this massive storm slowly starts to make its way into Louisiana, in Mississippi, and hook back in toward Tennessee. The - the concern will be in - over the next 24, 48 hours will be the inland flooding. That's still very much a concern.

Creeks and tributaries, they quickly fill up with these flash flood situations, so that's why they're urging people, look, be careful. If you're driving down roads like this, make sure - no reason to if you don't have to. These are situations where people can easily get swept away in the floodwaters, so they're urging people to watch out for that.

But, for the most part, we haven't heard any reports of drownings or deaths or injuries, but these situations continue to monitor as these continues to fall (ph) because, above all else, Alina, this is just a slow, dreadfully slow moving storm.

CHO: It will be a soaker, that's for sure. I know you showed us in the last hour some of the residents who parked their cars on higher ground, which was very smart thinking.

Have you talked to some residents there, and are they making any specific preparations ahead of the storm?

LAVANDERA: You know, it's interesting, we just did a - between our last reports, we just did a drive around town, and - and really get the sense that people just aren't that preoccupied with this. Business as usual. Many of the businesses are still open - restaurants, gas stations, people kind of carrying on and doing what they normally do on a Saturday, even though with the storm and the winds that gust strongly from time to time, as it is now, you know, just kind of going about their business.

So, you know, they've done their preparations, gotten their supplies. But like - as I mentioned, you know, this is a community that was just simple shattered and devastated by Hurricane Katrina and, to be quite frank about it, they're just not that bothered by a storm of this magnitude.

CHO: All right, Ed Lavandera live for us in Bay St. Louis, Mississippi. Ed, thank you very much. We'll see you soon.

Jacqui Jeras of course tracking all of the developments on Tropical Storm Lee. She joins us now with an update. So, what's the latest, Jacqui?

JACQUI JERAS, AMS METEOROLOGIST: Well, it's not moving, and that's the biggest problem. It's literally stationary. That's the latest update from the Hurricane Center. And we're given this little burst here of convection near the center, so as long as it stays over open water, we could see this thing intensify a little bit, and it's already got a bit of umph (ph) to it.

Take a look at this video that we just got in. This is from overnight in Pass Christian, Mississippi, and there you can see big waves and this boat that was just pushing up and slamming up against this pier and these people were trying to save that (INAUDIBLE) - boy, I tell you, I wouldn't recommend this. Just let the boat go, guys.

But it gives you an idea of how power - how much power we have with this storm and how big the waves are. They're going to be several feet above normal tide as the storm moves in. But the waves are not the biggest threat here. This is definitely a flood storm, and something we're going to be dealing with for days because it's just not moving.

And you can see that forecast track. I mean, look at this. This is - this is Tuesday morning. It's still here in Alabama. So it's not moving a whole heck of a lot.

And we were talking about potential for landfall later today. Landfall's not that important, quite honestly. It's the speed of the storm and how much rain we're going to be getting.

Take a look at some of the forecast totals. We've already seen as much as eight to nine inches of rain in parts of Louisiana. And it's really this big purple and white area that we're talking about for the greatest accumulations that we're talking 10 to 20 inches easy, and this is just in the next 48 hours. And it will be making its way inland.

We do have flood watches and warnings which are posted, which really cover a large portion of this area. And the storm is going to be hooking up with a cold front, and it's that cold front that we're waiting for that is going to finally pick it up and start steering it towards the north and east. And we have flood watches already in advance of this. This is new ones posted for parts of Upstate New York, into Vermont, because we're expecting to see heavy rainfall on top of this already very, very flooded area.

One other threat we have to talk about is the threat of tornadoes. You can see we've got that watch box in effect. This is until 10:00 tonight. We have had multiple tornado warnings over the last couple of hours, only one ground truth in Lafayette, and it was very brief. We haven't see any reports of damage on it. But you need to - need to take those warnings very seriously.

It's gusty, it's rainy, it's a washout of a weekend. Not a whole lot of fun for so many people trying to enjoy the Labor Day holiday.

CHO: Jacqui, how concerned are you about New Orleans? Because obviously this is a place that sits below sea level.

JERAS: Right.

CHO: It's still cleaning up from Hurricane Katrina six years ago. How bad could it get there? JERAS: Well, here's the thing to keep in mind with New Orleans, and if I can get back to this map, I'll kind of show you what I'm talking about. It really depends on how much rain they get over a period of time.

If they get 10 to 20 inches of rain, obviously that's bad news. But if it's slow and steady, those pumps will continue to bring it out. And the thing I wanted to point out with this map is take a look at where New Orleans is and take a look at where most of the rainfall is coming in. It's all been to the east of there, and most of it's been offshore, actually.

This is going to start to wind through, heading up towards Mobile, heading up into the (INAUDIBLE) area. But if this is the area that keeps the heaviest of rainfall, New Orleans is going to fare OK.

But you just can't tell. The structure of the storm continues to change. If it stays over water, it can become a little more symmetrical and we could see some of those heavier bands. So if we stay like an inch or less an hour, New Orleans will fare a lot better than if we get those tropical downpours that we've -

(INAUDIBLE)

CHO: Lots of rain, OK. Just spread it out over time.

JERAS: Spread it out.

CHO: OK. Jacqui Jeras, thanks so much, as always.

While the Gulf Coast braces for Tropical Storm Lee, New Jersey gets ready to show the president how badly it got hit by Hurricane Irene. Remember, that storm, it was just a week ago. We'll have a live report from New Jersey, just ahead.

(COMMERCIAL BREAK)

CHO: President Obama will visit Paterson, New Jersey tomorrow. It's one of the places Hurricane Irene hit the hardest.

I want to bring in Susan Candiotti. She's been in New Jersey this week as people have struggled to cope, and Susan, I know you spoke to the mayor of Paterson. What did he tell you?

SUSAN CANDIOTTI, CNN NATIONAL CORRESPONDENT: Well, he told me quite a lot, including the fact that he's very excited to hear that the president is coming to visit here tomorrow.

But, you know, Alina, let me set the scene for you for just a minute. We're standing here in front of the Passaic Great Falls here in Paterson, New Jersey. It's a 77-foot drop, this waterfall, and certainly it's a very popular site for both tourists and locals. But it is drawing even more people this day because of how it now looks.

Normally it is very serene and very quiet and a very slow current. But, thanks to Irene, look at how that water is gushing now, a very strong current. And it is this Passaic River that has been flooding parts of the city.

The good news is that the water is starting to recede. However, many people have still been evacuated, remain evacuated from their homes, cannot go back yet. Two of the seven bridges in the city remain closed, so do some roads. Some shelters remain open, and in fact some people still have to boil their drinking water.

So that's the backdrop for the president's visit and of course they're hoping for a disaster relief and are going to be getting it, so says the federal government. Also, inspectors wearing hazmat suits have been looking over buildings here that have been damaged by the flood to make sure that they are safe before people go back in.

And I asked the mayor not only about the president's visit but how people here are holding up.

(BEGIN VIDEO CLIP)

MAYOR JEFFERY JONES, PATERSON, NEW JERSEY: We're all on line, folks from every ethnic background and social ladder. And we just kind of understood, we have a chance now. We have a chance to build, we have a chance to help each other. And, I asked, once you get some point of recovery, help somebody else.

That's how we'll stay afloat. That's how we'll get better.

(END VIDEO CLIP)

CANDIOTTI: So because federal disaster money is heading this way, it is the hope of the mayor that Paterson will be on the road to recovery soon. And certainly this is a city that has had its share of troubles over the years, economically, hit hard by unemployment, for example.

It used to be a big industrial town, but many of those plants have now closed. So they're looking forward to this federal help, not only to recover from the hurricane, but perhaps to get a fresh start - Alina.

CHO: Susan, earlier we were talking about Vermont and the situation there, about how so many roads and bridges have been washed away as a result of Irene. What's the road situation in New Jersey where you are? Are they impassable?

CANDIOTTI: Many of the roads are passable because the water has - the water level has been going down, floodwaters receding. But some roads do remain closed off and, as I said earlier, two bridges of the seven that are here in the city, you still can't go across.

So you have to pick and choose where you go. Some areas, for example the downtown, most if not all businesses are up and operating. Many people, however, still remain without power.

CHO: Wow. Unbelievable, a week after the storm.

Susan Candiotti, live for us in Paterson, New Jersey, ahead of the president's visit. Susan, thank you very much.

Sarah Palin is taking on Republican presidential candidate Rick Perry. We'll tell you what she said after the break.

(COMMERCIAL BREAK)

CHO: Sarah Palin is grabbing a spotlight in the key presidential caucus state of Iowa. She just wrapped up her keynote speech at a Tea Party rally in the town of Indianola.

CNN political reporter Peter Hamby is there, and Peter, you know, what? If she walks like a duck, talks like a duck, it's a duck, right? But she hasn't announced a presidential bid. She certainly kind of sounded like a candidate today, though.

PETER HAMBY, CNN POLITICAL REPORTER: She did sound a lot like a candidate. But, you're absolutely right. Sarah Palin is one person who can walk like a duck and sound like a duck, but might not actually be a duck, at least just yet.

Palin did go farther than she has before in trying to outline some broad policy proposals that she would implement if she runs and becomes president, among them eliminating all corporate taxes. Sarah Palin famously raised taxes on the oil industry in Alaska when she was governor, but she's proposing to eliminate them. She was saying that the lost revenue by eliminating these taxes would be made up for by closing loopholes in the federal tax code, also by decreasing federal regulations and revealing - sorry, repealing Obamacare, Alina.

So she did sound like a candidate in a lot of ways.

(BEGIN VIDEO CLIP)

PALIN: Some GOP candidates, they also raised mammoth amounts of cash, and we need to ask them too, what, if anything, do their donors expect in return for their investments? We need to know this because our country can't afford more trillion dollar thank you notes to campaign backers.

(END VIDEO CLIP)

HAMBY: You heard Sarah Palin right there, not mentioning any of her potential Republican rivals, but Palin sources, you know, have pretty much made clear that that comment right there was directed at Texas Governor Rick Perry, who is a prolific fundraiser and has been criticized by his opponents in Texas for a long time of rewarding his political allies and campaign donors with government contracts and plum jobs.

So Palin clearly drawing a line in the sand there against Governor Rick Perry, the Republican frontrunner in the race, Alina.

CHO: By my count, she also said hope he change (ph) three times, and also said polls are not - are for strippers. I haven't heard that ever, I don't think.

Having said that, she did not announce her candidacy today. Her - her people say that she will make some sort of an announcement within the next month, but what are your sources saying about whether or not she's going to run?

HAMBY: Honestly, the only people that know if Sarah Palin is going to run for president are Sarah Palin and Todd Palin. And I can tell you that they're waiting till the last minute to make this decision.

They know they have to make a decision, as you said, by the end of this month, but they didn't announce today, they're not going to announce tomorrow in New Hampshire, and they're probably not going to announce for several weeks. So that's - that's all I can tell you.

I mean, even her staff have no idea. They do know that they've got to weigh some basic political groundwork for her, which they're trying to do a little bit of in Iowa, in case she does run. But, again, until Sarah and Todd pull the trigger, there is no campaign, Alina.

CHO: All right. There you have it. Peter Hamby, live for us in Iowa, where Sarah Palin just gave a speech to Tea Party members. Peter, thank you very much.

Meanwhile, Rick Perry is campaigning hard today in the State of New Hampshire., traditionally, the first state to hold a primary, of course. The Republican presidential candidate is attending a backyard house party in Manchester. He spoke at the event taking aim at President Obama's economic policy.

(BEGIN VIDEO CLIP)

RICK PERRY (R), PRESIDENTIAL CANDIDATE: When it comes to economic growth, I know that the answer is not forcing government stimulus or through some massive bureaucracy to a handful of handpicked industries to create temporary jobs. I know that's not the answer.

Mr. President, you cannot spend your way to prosperity. It doesn't work. It is never worked. I'm tired of liberals who only care about jobs, just to staff up more government programs. I want to create jobs so that families have more income, so that families can live free.

(END VIDEO CLIP)

CHO: Perry isn't the only Republican trying to woo voters in the Granite State. Jon Huntsman is there today. Mitt Romney arrives tomorrow, and Monday, Sarah Palin pays a visit.

Thousands of unwanted dogs are put to death every year. Back in 1995, one woman decided to train shelter dogs for disaster relief. Her work is making Wilma Melville a CNN Hero of the Week.

(BEGIN VIDEOTAPE)

WILMA MELVILLE, CNN HERO (voice-over): When the Oklahoma City bombing happened, I saw the size of that building on television. I had a hobby of learning to train a disaster search dog.

I was deployed to Oklahoma City. I did wonder can we really do this. Can we really find live people? When I got home, I said, what is this nation doing with approximately 15 FEMA certified dogs? This one building alone requires far more than 15.

(on camera): My name is Wilma Melville. Our organization trains rescue dogs and firefighter handlers to save lives after a disaster.

Right turn.

We like to use shelter dogs. It's a humane thing to do. There is nothing better than a dog's nose to find a live human.

We have been to the World Trade Center, Japan, Joplin, Missouri, and Haiti.

UNIDENTIFIED MALE: In Haiti, on a fourth day there, we made contact with a 10-year-old girl. We would ask her to acknowledge us with a tap. And around the sixth or seventh hour she stopped tapping.

MELVILLE (voice-over): Finding live people is our goal. But providing hope for the onlooker and a place to begin work for the firefighter, those are meaningful, meaningful objectives.

(END VIDEOTAPE)

CHO: And if you knew someone who deserved special recognition, go to CNNHeroes.com.

We're back after this.

(COMMERCIAL BREAK)

CHO: We're talking a lot this weekend about new storms headed our way from the Gulf of Mexico and the Atlantic, but a lot of folks on the East Coast are still dealing with a devastation left by Hurricane Irene. Hundreds of thousands of people still without power, entire towns cut off by floodwaters and maybe for days to come.

Now, one of the hardest hit areas is East Haven, Connecticut. That's where Irene's storm surge tossed homes around like toys. And I was there earlier this week.

(BEGIN VIDEOTAPE)

DINO BRAINERD, IRENE VICTIM: The whole first floor is gone. This was the second floor actually. And -

CHO (on camera): This is the second floor?

BRAINERD: This is the second floor.

CHO (voice-over): The living room, kitchen, rooms that were once one floor up in Dino Brainerd's home are now hugging the beach at ground level.

(on camera): Oh, my god.

(voice-over): Homes sheered in half by what many here call the perfect storm. BRAINERD: It's eerie. You come back and it's almost like it is so surreal.

CHO: Like this scene. People enjoying their summer, just feet away from total devastation.

(on camera): These are the pillars on which the homes were built to protect them. This is what's left after Irene. One resident told me it's as if someone picked up their home, threw it and stomped on it, all of the homes here, flattened and reduced to rubble.

MAYOR APRIL CAPONE, EAST HAVEN, CONNECTICUT: We believe that we have 25 homes that are a total loss, and maybe another 20 that are uninhabitable.

CHO (voice-over): Adding to the heart break, cozy beaches tight knit and many families have owned their homes for generations, like Jim Delucia.

JIM DELUCIA, IRENE VICTIM: We did get a little water in here. Now that's very unusual.

CHO: Sixty-five of his 70 summers have been spent here. Delucia says with all the beach erosion over the years, owning a home on this stretch of beach is like playing Russian roulette.

DELUCIA: It wasn't a question of - of if. It was a question of when.

CHO: Life-long resident Roberta Sabo ignored the mandatory evacuation order.

(on camera): What did you see?

ROBERTA SABO, IRENE VICTIM: I saw the house coming down, what I see. I saw this, this coming down and coming at me.

CHO (voice-over): Her home was spared. But for Dino Brainerd and his family, there's little to salvage. Yet for him, leaving the area is not an option.

BRAINERD: I would not let this stop me from coming back.

CHO (on camera): When you hear name Irene now -

BRAINERD: I wouldn't be naming any of my daughters or pets Irene.

(END VIDEOTAPE)

CHO: That's for sure.

I've got Dino Brainerd on the phone right now. You just saw him in - in my report. So, Dino, tell me how are things faring now? Where are you?

BRAINERD (via telephone): I'm living up the street from where the devastation occurred. I'm staying with relatives.

CHO: And have you heard at all from insurance adjusters or any state officials? I mean, what is the status of - of rebuilding there? When can you start? Is there money coming to you to do that?

BRAINERD: Today we went to a town meeting that they went over a lot of the insurance stuff with us about FEMA kicking in and - but there's still a lot of unanswered questions. You know, it's slow going, and a lot of anxiety. You know, there's not a lot of direction, you know, to turn to.

CHO: I know you said the Lord giveth and the Lord taketh away. And that's how you've dealt with it. And you have a tremendous attitude, I mean, given what has happened. But I know you've spoken to other residents. How is everybody coping there?

BRAINERD: Well, the community has been devastated and a lot of people are walking around in shock and - but everyone's pulled together. And the camaraderie and the love has been unbelievable. They set up a food drive, like, right up - right up the street from us, and had food cooking all day and stuff, and bottled water and toiletries and, you know, people are donating stuff.

I mean, the love in this community is unbelievable. This is a very tight knit community. And it's been unbelievable, the support.

CHO: Connecticut was just declared a federal disaster area late last night. We knew this was coming. You mentioned those FEMA funds. Are you hopeful that you're going to get any of that?

BRAINERD: Of course, I'm hopeful. We lost basically everything that we own. And, you know, we're trying to pick up the pieces and hopefully the federal money will kick in and help us get back on our feet.

CHO: Well, we wish you the very best, Dino Brainerd and the best to your family and the entire community along Cozy Beach Avenue, which was just decimated after Hurricane Irene. Good luck and good speaking to you. Thanks, Dino.

Coming up, there's talk again about a double dip recession. Next, in our "Financial Fix," how to recession proof your family's budget. You wouldn't want to miss it.

(COMMERCIAL BREAK)

CHO: It's the number one issue in American homes, getting your financial house in order. Today, in our weekly "Financial Fix," making your family budget recession proof.

Financial planner and author of "It's Just Money, So Why Does It Cause So Many Problems," Karen Lee joins us. Great title for a book, by the way.

KAREN LEE, CERTIFIED FINANCIAL PLANNER: Thank you.

CHO: I mean, you know, we got these bad U.S. economy numbers yesterday.

LEE: Right.

CHO: No new jobs created in the month of August. Unemployment still at 9.1 percent. Things are not getting better.

LEE: Right.

CHO: And so obviously there are a lot of people out of work. There are a lot of people who still have a job and yet are still concerned about their budget.

LEE: Right.

CHO: Maybe want to try to downsize. So what are some of the tips? You start with stash cash. How much cash?

LEE: Well, let's just say too about a recession, if we don't go back into a recession, there's another one coming in our lifetime.

CHO: Right.

LEE: Because it's part of the normal economic cycle. So these tips are really timeless, but really important right now.

CHO: So stash cash. How much?

LEE: OK. Well, we used to say that we needed about three to six months of what your expenses are every month for emergencies. We've upped that to about 6 to 12 months.

CHO: Why?

LEE: Well, because we're finding that people are taking much longer to find work than in the past and this recovery is taking so long. So if your bills are, say, $4,000 a month, now we're looking at $24,000 to $48,000 safe money.

CHO: The next thing on your list here is evaluate spending. Is that something everybody should do right now?

LEE: Again, we should always be doing that. But what I like to see people do is sort of break their expenses into three columns. Column one, obligations. You've got to hit those every month. Number two, you're going to have some wiggle room like utilities and food. And number three are discretionary.

So try to keep that first column as small as possible. And if you have a two income family, try to live on one income.

CHO: That's so difficult, though.

LEE: It is.

CHO: Families are trying to put food on the table.

LEE: Right.

CHO: Meanwhile, you know, you say your next tip here is keep debt to a minimum. I mean, I mentioned putting food on the table. I mean, that's going to be impossible for some people.

LEE: So we're probably talking to people that do still have jobs here. As always, keep debt to a minimum. That has to do with that first column on the budget. Those are typically your debt obligations, so try to keep those low.

CHO: And so is there a benchmark? Is there a number?

LEE: Well, there really is not. I could go at length as to what I think, but I'm very conservative.

CHO: But what you -

LEE: I think you should keep it as low as possible and strive to be debt free, honestly. The one thing I want to add to that that is while you're working, establish good credit lines. If you are lucky enough to have equity in your house right now, go get an equity line while you still have a job because later, if you lose your job or your income goes down, you're not going to qualify.

CHO: And that means keep credit cards open, right?

LEE: But don't spend -

CHO: But don't use them.

LEE: Exactly.

CHO: Right, right, right. My mom used to tell us that. Still does.

LEE: All right.

CHO: So the next thing on your list here, get benefits independent from your company. What are you talking about? Life insurance?

LEE: Well, most of us are extremely reliant on our company for all of our insurance health, disability and life insurance. So I absolutely encourage people, go get maybe not health, but disability and life insurance, separate from your company if you are let go, you'll already have it in place and you would be shocked how often we find people can buy more inexpensive term life insurance outside their company.

CHO: But how do you do that, though? I mean, if you're trying to keep a tight budget?

LEE: Well, term insurance is so inexpensive and if - in times like this, a premature death of a breadwinner, that's worse than anything. So it's still really, really important.

CHO: So take - take the necessary measures.

LEE: Absolutely.

CHO: And, finally, evaluate your investments.

LEE: Well, we find that most people go into this market downturns overly invested in stocks. And they really can't tolerate the risk that they've set up. So I would like you to keep an idea on how you are allocated. But the other big mistake is that first tip, the emergency money, it should not be in the market. No short-term money in the market.

CHO: Keep it liquid.

LEE: Keep it liquid.

And then, remember, if the market is going down, remember to rebalance those investments, because that fuels your growth on the way up.

CHO: Well, and you should buy when it's dipping, right?

LEE: You should buy. It's the hardest thing to do, but -

CHO: You hear it all the time.

LEE: -- if you're in a 401(k), just keep investing. Keep investing.

CHO: Oh, yes. Pretend it's not there, right?

LEE: Exactly.

CHO: That's right.

LEE: You have to.

CHO: That's the best way. That's the best approach.

Thank you so much. Get more information -

LEE: Thanks for having me.

CHO: Thank you. Get more information by reading Karen's new book. It's called "It's Just Money, So Why Does It Cause So Many Problems." Again, great title. Or reach Karen at KarenLeeAndAssociates.com.

Karen, thank you very much.

LEE: Thanks.

CHO: And still ahead, Jacqui Jeras is back with a look at Tropical Storm Lee as it drenches parts of the southeast this holiday weekend. Your forecast is next.

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CHO: Forty-seven minutes after the hour. Back to our top story.

We are tracking Tropical Storm Lee and Jacqui Jeras is watching that for us. So, Jacqui, this is no Irene, but it's going to be a soaker.

JACQUI JERAS, AMS METEOROLOGIST: No. Yes, so flooding is obviously the number one thing that we're concerned about with this storm. It's just sitting there and lingering off the Louisiana Coastline. Much of the heavy rain offshore right now, but these outer bands are making their way in, bringing the threat of tornadoes and those heavy downpours as well.

Our track is showing you that it's going to continue to move very as slowly here over the next 24 to 48 hours before it gets picked up by a cold front and starts steering up towards the north and east. And this is actually some really good news for a few people here. We need this rainfall across parts of Alabama and to Georgia as well.

But as it heads up to the northeast, and through out the Appalachians, we're a little bit more concerned because this could get over some of those flood areas in Vermont and Upstate New York. So flood watches have been posted in advance of that.

Now, we also have that cold front up to the north and I want to show you up there what's going on with showers and thunderstorms. Some of these could be very strong. They're moving into Chicago as we speak and there are ground stops that have been issued now at both O'Hare and Midway. So keep that in mind as it is certainly the holiday weekend here.

Let me get my map back there for you and show you what else we've got. In addition to those airport delays, we're also expecting to see some more fire conditions across parts of Texas. As this cold front approaches, those winds are going to kick in and so that is going to increase the danger as we head into tomorrow.

Much cooler air is pulling in, back behind this cold front. Look at that, Chicago tomorrow 65; 70 in Minneapolis; 72 in Kansas City; even Dallas not even making it up to 90 degrees. And then the Labor Day holiday, looking for a lot of rain up and down the East Coast because of Lee as well as that cold front. So kind of a soggy, unfortunately lousy weekend for a whole lot of people out west is really where you have to go, Alina.

We'll have more on Lee as well as Katia coming up at the top of the next hour.

CHO: Did you know Fashion Week starts next week in New York?

JERAS: Does it? I knew you would know.

CHO: I should know. It's one of my favorite weeks of the year, Jacqui.

JERAS: I know. Exciting. Are you going?

CHO: Yes, I will be. I'll be covering it.

JERAS: Great. CHO: In fact, some of the biggest names in the fashion industry will be in New York for Fashion Week. My talk with designer Marc Jacobs is next.

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CHO: Next week is the start of New York's Fashion Week. It's one of my favorite weeks of the year. A mega showcase of top designer collections for spring 2012.

Just a couple of days ago, I got an exclusive look with one of fashion's biggest superstars, Marc Jacobs. He's been labeled a creative genius, but surprisingly, the man "Time" Magazine named one of its 100 most influential people last year told me that's not how we would describe himself.

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