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Campbell Brown
Congress Does Not Pass Wall Street Bailout Bill; Meantime, The Dow Drops 777 Points, Losing $1.2 Trillion In Assets
Aired September 29, 2008 - 20:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JOHN ROBERTS, CNN ANCHOR: Very interesting poll numbers you had there, Lou. Thanks.
And once again we begin with breaking news on this financial meltdown. For those who supported the $700-billion Wall Street bailout, it was a surprising and stunning failure when the House of Representatives voted to reject it. That sent the Dow industrials into a breathtaking plunge. By the time the market closed it had lost $1.2 trillion in worth. So, much that no matter where you live, the aftershocks from this political and financial earthquake will undoubtedly affect you.
Tonight, in THE ELECTION CENTER, our correspondents Jessica Yellin on Capitol Hill, Ed Henry on the presidential campaign trail, and Senior Business Correspondent Ali Velshi; they're working their sources looking at how today's events will change the political and financial landscape.
We will also hear from top advisers to the presidential candidates. Former Treasury Secretary Lawrence Summers for the Democrats; Rudi Giuliani for the Republicans. Today's events may affect your job, your home, your savings, and your future. There are a lot of important topics to cover, so let's get straight to it. Here's how the day's dramatic events unfolded.
The House began debating the rescue bill at 9:27 this morning. Three minutes later the trading day on Wall Street got off to a bad start. Due to electrical problems, the opening bell didn't ring at New York Stock Exchange. Nervous investors sent stocks down from the first moments of trading and the market stayed down as the debate on Capitol Hill dragged on.
About 22 minutes after noon, House Speaker Pelosi gave a speech slamming the Bush administration and Republicans. Listen closely, because some Republicans would later say after, both parties worked through the weekend to hammer out an agreement Pelosi remarks were at best mistimed and at worst, insulting, and they said it was a reason that they votes against the bailout.
(BEGIN VIDEO CLIP)
REP. NANCY PELOSI, (D) SPEAKER OF THE HOUSE: When President Bush took office, he inherited President Clinton's surpluses, four years in a row budget surpluses on a trajectory of $5.6 trillion in surplus. And with his reckless economic policies within two years he had turned that around. And now eight years later, the foundation of that fiscal irresponsibility combined with an anything-goes economic policy has taken us to where we are today. They claim to be free market advocates when it's really an anything goes mentality.
(END VIDEO CLIP)
ROBERTS: Later, at 1:13, Republican Leader John Boehner tried to rally support for the bill and in the process gave us our first real indication that it was in serious trouble.
(BEGIN VIDEO CLIP)
REP. JOHN BOEHNER, (R) MINORITY LEADER: We have an imperfect product, but we have a product that may work; a product that may work if we can get the votes to pass it. Which I don't have to tell any of you is in serious doubt. None of us came here to have to vote for this mud sandwich. I could describe it a lot of different ways. You all know how awful it is. I didn't come here to do this. I didn't come here to vote for bills like this. But let me tell you this, I believe Congress has to act.
(END VIDEO CLIP)
ROBERTS: Was mud a euphemism? A question we're asking tonight. At about 1:28 p.m., Congress did finally acted, voting supposed to last 15 minutes, it actually took 40 minutes and Wall Street was watching the whole time. As it became obvious that the bailout was in trouble, the Dow industrials started to fall further and faster. The worry was justified. Just before 2:07, the finally tally was in, 205 votes for the bailout, 228 against. And 95 Democrats voted no on the bill, so did 133 Republicans; two thirds of House Republicans defying their leadership and their president. The finger pointing started only minutes after the bill's defeat.
(BEGIN VIDEO CLIP)
BOEHNER: The speaker had to give a partisan voice that poisoned our conference, caused a number of members that we thought we could get, to go south.
REP. ROY BLUNT, (R) MINORITY WHIP: We did think we had a dozen more votes going to the floor than we had, no more than that, but we thought we had a dozen more. I think, unfortunately too many of our members were already on the floor when they heard that late speech by the speaker.
(END VIDEO CLIP)
ROBERTS: Speaker Pelosi and Democrats were not having any of that. Congressman Barney Frank, who was one of the lead negotiators of the bailout was especially scathing in the criticism.
(BEGIN VIDEO CLIP)
REP. BARNEY FRANK, (D), CHMN., FINANCIAL SERVICES CMTE: And there were 12 Republican members who were ready to stand up for the economic engines of America but not if anybody insulted them. I'll make an offer. Give me those 12 peoples' names and I will go talk uncharacteristically nicely to them. And tell them what wonderful people they are and maybe they'll now think about the country.
(END VIDEO CLIP)
ROBERTS: As the bickering continued, so did the blood bath on Wall Street. The Dow industrials finished with their worst one-day point loss in history, down 777 points. It is also the first time ever that more than $1 trillion has been lost in a single day.
So where do we go from here? Can Congress pick up the pieces? Those are the first of many urgent questions that we need to answer tonight. Our Jessica Yellin, who has followed every moment of this throughout the weekend has been talking to her sources and has the newest details for us.
Jessica, it is interesting to see that 133 Republicans, many of those expected to, but particularly these 12 that Minority Leader John Boehner thought he had on his side, literally turned their back on the leadership in Congress and on the president.
JESSICA YELLIN, CNN CORRESPONDENT: That's right, John. As we have talked to people after the bill went down, they tell us Democrats and Republicans -- that Republican leadership wasn't sure they'd have the votes even as the bill -- as the clock started ticking. They thought, they said they'd go ahead with the vote thinking as soon as the pressure is on, some of these folks would change their noes to a yes, because they didn't want this hanging on their shoulders. And obviously, they were wrong.
What you have here, in sum, is a group of Republicans within the larger Republican conference that's basically flexing their muscles. They are saying they don't believe in the values that their leadership is imposing on them with this bill, they don't want to support it. They don't want to follow their leaders and so they just bucked them on this one. And they're going to take a lot of arm twisting to get them along. They don't know what will bring them on at this point.
ROBERTS: Jessica, at the same time, 95 Democrats, a third of the Democratic caucus voted against the bill as well. What's going on, on that side?
YELLIN: You're right, John. It is because this is a bitter pill for everyone to swallow and that is what is getting lost in a little bit of the coverage of all of the Republicans. You heard John Boehner, there, refer to this as a mud sandwich. And you asked if that was a euphemism. The answer is, yes. He used far more colorful language behind closed doors to describe it.
And it's true on both sides, the Democrats don't like this any better. Nobody really wants to vote for this bill that we've talked to. The all feel that it's necessary because the cost of doing nothing could be worse. But everybody is under pressure from their constituents not to support it and some just buckled under the political pressure you can say.
ROBERTS: All right. Jessica Yellin for us tonight on Capitol Hill. Jessica, thanks.
As historically bad as this financial meltdown is, we need to know what happens next? I mean, what's going to happen when you wake up tomorrow and what if Congress never approves any kind of a bailout? For that we go to our Senior Business Correspondent Ali Velshi, who has been watching all of this.
Ali, take us through the movement of the stock market today specifically while the House voting on this bill.
ALI VELSHI, CNN SR. BUSINESS CORRESPONDENT: Well, John, we knew there were problems this morning. Take a look at where the market started off. We were already down a couple of hundred points. And it was sort of gyrating between down 250 to down 300 points for most of the day, and then, right about -- just before 2 o'clock, as you mentioned, right when it looked like there was less than a minute left to go in voting and it was not going to pass, this is what happened to the market. It dropped down more than 600 points lower. And then it looked like - you know, we weren't really sure what was going on. We had heard that the deal wasn't actually closed down yet.
The House hadn't stopped voting, so it went up a little bit. And then learned what was going on in the afternoon, it just went further and further and further. And look at that line, right at the end. That was after the market closed. When the market closed and the bell rang at 4 o'clock, the market off about 603 points. Just as the trade settled in, it dropped down to 777 points eclipsing the biggest point drop ever, which was on September 17th, 2001.
Now, I can tell you all the statistics, it doesn't matter. If you are invested, right now, understand that the market can make up 777 points in a matter of days. That is not your concern. Don't overreact to this. But let me explain to you, the credit markets, this is where the problem is.
OK, you have major investors, and I mean, major, countries, sovereign wealth funds, pension funds, hedge funds and you have banks. They send money between each other. Now, the most direct relationship between you and this bailout and the credit market is that banks loan you money. Auto loans, student loans, home loans, that's already a problem. That's frozen. Now you are trying to sell your house because maybe you're being foreclosed on. Those same banks loan other people money, including someone who might have bid on your house, you want to go to contract, but they can't get that loan. So that's the second way this affects you.
Third way, the banks and these major investors loan money to corporations. It is very standard for corporations to borrow money on a short-term basis to meet their operating expenses, including salary. That affects you right now. If a company can't meet those payments, that means that you may not get your salary, or you may get laid off.
These are just three simple ways in which this credit freeze, this credit crises affects you. You make a decision as to whether call it a Wall Street bailout or a rescue package, but understand this is connected to you. And as we are speaking right now, people are running into these problems tonight. People are losing their jobs because of this. That's why this is so important, John.
ROBERTS: Interesting, Ali, how all of those arrows eventually point to -
VELSHI: You.
ROBERTS: You. All right, we'll be back with more from Ali a little bit later on.
Ninety-five Democrats and 133 Republicans voted to defeat the bailout. To say the least it was a rare political alliance. Next, two of the people who voted against the bill join us. And I'll ask them why they both voted no, and if they can agree on any way to keep this crisis from getting worse.
(COMMERCIAL BREAK)
ROBERTS: Those numbers tell an absolutely dismal story. The Dow today had its biggest point drop in history, worse than the day that the markets reopened after the 9/11 attacks. There is a silver lining to all of this, though. When you look at the percentage of the market, today 7 percent loss was not in the top 10 of all time.
And 133 Republicans and 95 Democrats came together today to defeat the $700 billion bailout plan. One of those Republicans is California's Darryl Issa, who was an early critic of Treasury Secretary Paulson's bailout plan. He joins us live from Capitol Hill.
Congressman Issa, you didn't like Secretary Paulson's initial plan, but it went through several iterations There was a lot of extra language that was put into this over the weekend. That marathon negotiating session. What was it about this final bill that came to the floor that you didn't like?
REP. DARRELL ISSA, (R) CALIFORNIA: Well, first of all, this bill didn't substantively change from the very beginning. This - no matter how much lipstick you put on it, this has always been a purchase of assets at a value you wouldn't allow them to be valued on if they stayed on the books. Fundamentally, it is wrong to do mark to market, and then abandon mark to market if you are going to buy the assets. That was the first part.
The second part is the FDIC has far more powerful tools, all of the people within the administration should know these tools are available. They haven't tried using it for earn outs by banks that can earn out. Wachovia went down today. I think it made a difference. If they let a bank go down that they could have saved.
ROBERTS: So, what would be in a bill that you could pass?
ISSA: Well, all we really would ask in this bill -- I can speak for 50 or 60 of the Republicans, I think, with confidence. One, mark to market being reformed to allow for this fair valuation to maturity of the assets on the books.
ROBERTS: Do me a favor. Congressman, can you just put that in language that the average investor out there, who is not a financial expert can understand?
ISSA: Sure. In 1980, '81, '82, the last big crises we had at the beginning of the Reagan administration assets were not arbitrarily marked down simply because it was a bad economy. They were allowed to have their perpetual value, their real value in earnings.
Secondly, if a bank has a capital problem but has real net worth, allow them to earn their way out of it. That, again, was done in the '80s. You make those two changes and you can take a problem far less difficult than what we faced until the early Reagan era, and you could earn your way out.
No - I don't believe Republicans object to providing sufficient cash to buy out failed organizations or to buy these assets if they are for some reason in hands they be. But that's really where the Fed should have come to us, the Treasury secretary should have come to us and said, "I'm going to use tools A and B, which have asked for, and then I want money for C. If you put A and B into this bill, you move a lot of Republicans towards saying let's work with what's known and doesn't cost taxpayers money, then we will give you additional resources.
ROBERTS: Congressman Issa, Congressman Boehner went into today's vote believing that he most likely, but wasn't absolutely sure, that he had the vote of 12 Republicans, which would have been enough to take this bill over the top. They came back after the vote and said this was all Nancy Pelosi's fault. She slammed President Bush for no reason when she was talking about this bill. Do you really believe that's the reason why those 12 Republicans did not vote for this bill?
ISSA: I believe that the Republicans voted with me, that changed their mind during the education process, in which we had former FDIC Chairman Bill Isaac in, and others, did so because they found out there were things that should be done by this administration that haven't been done -
(CROSS TALK)
ROBERTS: So is it just a red herring to say this was all Pelosi's fault?
ISSA: Look, I didn't listen to Nancy Pelosi's speech. I was too busy helping people understand the final bill and what needed to be different, and why we should vote it down, and insist that these changes be made as part of the package. To be candid, perhaps Nancy Pelosi did do herself a disservice by just once again going over the top on a partisan basis. But I think the fundamentals of why Republicans and Democrats voted against this should be that we can do better; should be that this administration has not earned our trust, without verification.
When Republicans verified we found out that, in fact, this administration including Chris Cox, who John McCain asked for his resignation, have failed to do things they could do that would mitigate the need for the taxpayers' dollars.
ROBERTS: Congressman Darrell Issa, of California, thanks for being with us tonight.
ISSA: Thank you.
ROBERTS: You mentioned Democrats who voted against this bill. Let's check in with one of them. Next guest, a Democrat who voted against this huge financial bailout, Congresswoman Linda Sanchez. She was one of 95 Democrats who voted against it. She's from the 3th Congressional District in California.
Congresswoman Sanchez, what was your reason for voting against this? Your leadership, Nancy Pelosi wanted this; Steny Hoyer wanted this, Barney Frank wanted it. You said, no.
REP. LINDA SANCHEZ, (D), CALIFORNIA: Yeah, well, I must point out, to start with, that the bill we voted on today was much better than the proposal that was brought to us by the White House almost a week ago.
ROBERTS: But not good enough for you?
SANCHEZ: But still had insufficient accountability to make me comfortable with voting for it. I think the limits on executive compensation need more teeth and I would have liked to have seen the mortgage bankruptcy portion of that bill left intact. That was taken out in the negotiations. And I think that that's a critical part to get more Democrats on board with the plan.
ROBERTS: OK, so you saw the results of the bill going down to defeat today, 777-point loss on the Dow; $1.2 trillion in investors' worth. A lot of that 401(k), retirement investments evaporated. In your district in California, unemployment is 7.9 percent. There were 34,000 jobs lost during the month of August. A lot of people are saying that because of the credit freeze here as a result of what's going on, on Wall Street there are more businesses that close. More jobs will be lost. Can anyone in your district afford to not have this bailout bill?
SANCHEZ: Let me just say nobody likes to see the market drop like it did today, but our market hasn't crashed. We do have a unique opportunity to come back and give a second try to make the bill little a more even handed in terms of who it's going to affect.
Yes, ultimately, it does affect the consumers and the job holders. But when you have no limits on executive compensation or no real accountability for what the administration does with the money, and how the oversight takes place, then I think you're really doing a disservice to hard-working American families that are looking for relief, as well.
I think the mortgage bankruptcy part of it was a huge missed opportunity because that could save money in that you would see families stay in their homes, and banks get the benefit of those mortgage bargains. It just might take them a little bit longer instead of those homes slipping into foreclosure, and causing further price drops in housing.
ROBERTS: You just said that the markets didn't crash today. But how many more 700-plus point drops do you think the market can stand?
SANCHEZ: Well, look, we had a big drop after September 11th. The market, you know, made its way back up. News does affect the markets, but it hasn't completely caused the financial collapse of this country.
ROBERTS: Not yet. OK, Congresswoman Linda Sanchez, thanks for being with us. Hope that you get something figured out at some point.
ROBERTS: Tonight, Barack Obama and John McCain trying to get the bailout back on track. Coming up next, in the Election Center, two of their top advisers, former Treasury Secretary Larry Summers, for Obama. And former Mayor Rudi Giuliani for McCain, telling us what their guys would do to fix the mess. Stay with us.
(COMMERCIAL BREAK)
HENRY PAULSON, SECRETARY, U.S. TREASURY: I will continue to work with congressional leaders to find a way forward to pass a comprehensive plan to stabilize our financial system, and protect the American people, by limiting the prospects of further deterioration in our economy. We've got much work to do and this is much too important to simply let fail.
ROBERTS: Treasury Secretary Paulson today promising, to try again. As the Wall Street bailout crashed and burned today, John McCain and Barack Obama were battling about it on the campaign trail. Our Ed Henry, who has been following McCain and Obama joins us now with the very latest on this.
Ed, McCain really raised the stakes by suspending his political campaign last week to rush back to Washington to try to work on the bill. He has a lot of political capital on the line.
ED HENRY, CNN POLITICAL CORRESPONDENT: You are absolutely right, John. This is a stinging defeat for John McCain. The fact that he did put all that political capital on the line, trying to sway more House Republicans to support this bailout bill. It didn't work. That put him on the defensive. So, what he tried to do today was go on offensive. Turn it around and basically say, look, at least I was active. I was aggressive. I was trying to take the initiative by working on this. And he is claiming that he at least twisted a few dozen House Republicans who would not have supported before, did come aboard. And then he went on the attack against Barack Obama . Take a listen.
(BEGIN VIDEO CLIP)
JOHN MCCAIN (R), PRESIDENTIAL CANDIDATE: Senator Obama and his allies in Congress infused unnecessary partisanship into the process. Now is not the time to fix the blame. It is time to fix the problem. I would hope that all our leaders, all of them, can put aside short-term political goals and do what's in the best interest of the American people.
(END VIDEO CLIP)
HENRY: The problem for Senator McCain, though, politically is that as you've been reported 133 House Republicans voted against his position on this. There were more than 90 Democrats that voted against it, as well. But the fact is the vast majority of Republicans voted against it. That is a problem for him, John.
ROBERTS: What about Senator Obama , Ed? Our polling over the years has shown that Democrats have an edge on who people would trust to handle the economy. Is he trying to get some political opportunity out of this?
HENRY: He is. He is seeing this as a golden opportunity, John. And the fact is that he's trying to use it once again, familiar theme that we have heard many times before, from Barack Obama, on the campaign trail trying to say, look, this crisis didn't just come around the last few months. This is because of the eight years of the Bush administration economic policies and he's basically trying to tie John McCain, of course, to those policies. Here's how he put it in Denver today.
(BEGIN VIDEO CLIP)
BARACK OBAMA, (D) PRESIDENTIAL CANDIDATE: It's not necessarily that I think Senator McCain doesn't care. I think he does care. I think he just doesn't get it. I think he doesn't get -- I think he doesn't get that this crisis on Wall Street hit Main Street a long time ago. I think he is out of touch with what's going on in peoples' day-to-day lives.
(END VIDEO CLIP)
HENRY: But again, an opportunity for Obama . We have seen him inching ahead, ever so slightly. Not jumping ahead but inching ahead in various national tracking polls, in the last week to 10 days. Many people attributing that possibly to this financial crisis. We'll have to go a little further and see how it plays out over the next couple of weeks, especially in the second and third presidential debates. But again, it is just an opportunity for Obama . He still has not used the economy to jump ahead. So he's got an opportunity. Let's see if he can actually take advantage of it, John.
ROBERTS: All right. Ed Henry for us tonight, from Washington. Ed, thanks.
HENRY: Thank you.
ROBERTS: Joining me now is Rudi Giuliani, former mayor of New York and former Republican candidate for president, and currently a McCain advisor.
Mr. Mayor, it is good to see you. Democrats are pointing fingers at the House Minority Leader John Boehner tonight, saying he had a job to do. All his job was -- was to deliver 12 votes. He couldn't even do that.
RUDI GIULIANI, (R) FMR. PRESIDENTIAL CANDIDATE: You know something? Nancy Pelosi couldn't deliver one third of the Democratic caucus. One third of the Democrats voted against her, including - I'm in New Hampshire right now, including the two members of Congress from New Hampshire.
Isn't this just repeating the mistakes she made this afternoon when she castigated the Republicans? Blame them for this crisis, when she needed Republican votes. The fact is that last week she had only four Republican votes. John McCain came back to Washington, something he was criticized for by the Democrats, got her 60 more votes. She had 64 Republican votes. She lost because she couldn't get her Democrats.
ROBERTS: Now --
GIULIANI: She lost because she couldn't get her Democrats. She lost one-third of the Democratic vote.
ROBERTS: Now, what she's saying about the Democrats is she managed do get two thirds of the Democratic vote on a bill sponsored by Republicans, demanded by, or at least desired by the White House And do you really believe that those 12 Republicans did not vote for this bill because Nancy Pelosi went off on George Bush?
GIULIANI: I don't. I believe that -- I believe the reality is that John McCain was right last week. This deal was not done. This deal was not made.
ROBERTS: But he supported this deal.
GIULIANI: He did, but that didn't mean it was done. Didn't mean that everybody else was on born.
ROBERTS: Why would he support a deal that wasn't done?
GIULIANI: Because he wanted to get it done. And he wanted them to get together, work on their members, each one of them take responsibility for getting more members.
ROBERTS: Wasn't his job when he came to Washington to deliver the Republican Caucus or enough to get it passed?
GIULIANI: It was going from four to 64 and reality is they weren't doing their job. After all, he came back to Washington -- after Harry Reid asked him to come back. He came back to Washington and then was bitterly attacked on your network, on every network, by the Democrats for even being there.
ROBERTS: Right. Now, did Senator Reid actually ask him to come back, or did he just say, we need to know where John McCain stands on this bill.
GIULIANI: He asked for John McCain to help lead the Republicans and he asked him to be very, very firm and very strong about it.
ROBERTS: Did he actually ask him to come back to Washington?
GIULIANI: I don't know if he used those words, but that's essentially what he was talking about.
ROBERTS: One of the reasons why so many people are also opposed to just this idea of a bailout is because there's so many people who are so beyond their reach, the reach of the normal taxpayer standing to make money on this. Your firm lobbying clients, who want to be a part of this bailout. You stand to make a lot of money on this, as well.
GIULIANI: I'm a lawyer. I would represent people in getting this done. I wouldn't make a lot of money from this. It would just be.
ROBERTS: Your firm would.
GIULIANI: Well, if I don't do this, I'd go and do something else. I'm a lawyer. I would represent people in getting this done. I wouldn't make a lot of money from this. It would be...
(CROSSTALK)
ROBERTS: Your firm would.
GIULIANI: Well, if I don't do this, I do something else. I'm a lawyer. My law firm represents clients and they make a lot of money doing that. This would just be one other area.
(CROSSTALK)
ROBERTS: But do you understand the anger out there, Mr. Mayor?
GIULIANI: And I'm not lobbying on this. That is not correct. I'm not doing an lobbying at all. That's just inaccurate. The reality is...
ROBERTS: Well, I didn't say you were lobbying. I said your firm is looking for clients.
GIULIANI: No, my firm is saying we will advise the clients on this. And that's our obligation. If we weren't advising our clients, we wouldn't be doing our job as lawyers.
ROBERTS: All right. But let...
GIULIANI: The reality is, this is a necessary measure to help the American economy that Republican candidates, the Democratic candidates, the leadership should get together, they're very close agreeing, they should agree. And then they should congratulate each other for what they did and get everybody should get credit for it and we'll get the darn thing done.
ROBERTS: I guess the bottom line of my previous questions was, do you understand the level of anger out there in this country about what's going on, about what they see on Capitol Hill, about all of this?
GIULIANI: Of course. They're very angry...
(END VIDEOTAPE)
ROBERTS: Unfortunately some problems with the tape. The mayor went on to say, yes, absolutely, he does understand the anger out there, and that makes it all the more important for something to get passed on Capitol Hill that will take the pressure off the financial markets. That interview pre-taped just a little while ago.
More breaking news tonight in the financial aftershocks from today's news and the U.S. causing sell-offs in early Tuesday trading over in Asia. South Korean markets down 5 percent. Australian shares lose more than 4 percent. Japanese stocks off nearly 5 percent. Not unexpected after what happened today on Wall Street.
And we have just learned that President Bush will make a statement tomorrow morning at the White House, 7:45 Eastern. You can see that on "AMERICAN MORNING."
Coming up next, the Obama campaign's view of the bailout bill. I'll talk live with former Treasury Secretary Larry Summers in a brief moment.
And later on, the markets, we've been hearing a lot of advice lately about what you should do. With today's record Dow drop, did that advice change?
(COMMERCIAL BREAK)
ROBERTS: Shortly after the Wall Street bailout went down in flames in the House, Senator Barack Obama opened a rally in Colorado, appealing to both the American public and the markets to stay calm. He had a simple message for Congress when it comes to the bailout, step up to the plate and get it done.
With me now is Obama financial adviser Lawrence Summers, who served as treasury secretary during the Clinton administration.
Secretary Summers -- or President Summers, as the case may be, thanks for being with us tonight. You know, there's an awful lot of anger out there. There are a lot of people who are saying, why is the federal government getting involved in bailing out Wall Street to begin with?
Can you tell us from your perspective whether that is a prudent way to think about all of this?
LAWRENCE SUMMERS, OBAMA ECON. ADVISER: Look, there's a lot you can argue about regarding the design of this bailout and there are all kinds of issues, they have been compromised out with a lot of help from Senator Obama who has really worked very hard on the finances of this issue.
But I think anyone who looks at it has got to see that our financial system has reached a place where it's very close to breaking down. Even the biggest banks in the country are unwilling to lend to each other, and if they won't lend to each other, that means they won't lend to us for our mortgages. That means they won't lend to the companies to create jobs. That means the ordinary flows of money that lubricate the economy aren't going to operate. So we're in a very tough situation. You saw that in stock market crash today in the largest point drop that there has ever been in some of the indices.
And somebody has got to try to put it together and bring some confidence. That's what Senator Obama has worked very hard with Secretary Paulson, with many members of Congress in both parties trying to do.
ROBERTS: Do you think...
SUMMERS: I think he has done his part. You know? He laid out principles. He made certain compromises. This bill is not perfect, from his point of view. His loyalists, the Democrats, two-thirds of them were prepared to vote for this plan. I think...
ROBERTS: And a third didn't. Let me just take it in another little different direction here if I could.
SUMMERS: Sure.
ROBERTS: Do you believe that Speaker of the House Nancy Pelosi torpedoed this bill with a speech that she gave before the vote causing those 12 Republicans to defect?
SUMMERS: Look, I'm not -- I'm an economist, not a politician. But I'll say this...
ROBERTS: Yes, but you operated in the political world for a couple of years.
SUMMERS: Yes, sure. So I'll just say this, I cannot imagine that any member of Congress who took the oath of office who was planning to vote for a bill to save the American economy would change their vote because they were offended by a speech.
I just can't believe that that's something that congressmen of either political party would do. And if any congressman did do it because they didn't like the tone of somebody's speech, that's a pretty telling indictment of our system.
ROBERTS: But on both sides of the political fence here, is there just too much finger-pointing going on? You know, voters, taxpayers are out there, they're watching the value of the portfolios, their 401(k)s drop, and all they're seeing is they're watching people on Capitol Hill point fingers at each other.
SUMMERS: You know, there is finger-pointing, but I'll tell you something, as, again, somebody who has worked in the political arena but really comes at this as an economist, what I have been struck by is that Senator Obama has spent hours and hours that he could have spent campaigning trying to learn about these issues, talking to financial experts. He spent hours that he could have used for photo-ops, working to try to bring members of Congress together. He spent long hours working cooperatively with the treasury secretary of the other political party.
ROBERTS: Could he have worked harder though to deliver some of those 95 Democrats that voted against this bill?
SUMMERS: Possibly. But he certainly was vastly more successful in -- with respect to the Democrats than the combination of President Bush, Secretary Paulson, and Senator McCain was with the Republicans.
So I think, sure, we'd all like to have reached a better outcome. No one more than Senator Obama. But it seems to me that he has really been an enormously constructive and important participant in this process.
And what I have been struck by again and again in my conversations with him has been his insistence that this situation was too important to play politics with.
ROBERTS: Gotcha.
SUMMERS: And he was prepared to make compromises if that was necessary.
ROBERTS: Mr. Secretary, I'm sorry, we're out of time. But thanks very much for being with us tonight. Appreciate your time, sir.
SUMMERS: Glad to be with you.
ROBERTS: Great.
And coming up tonight, a shocking new poll on the economy, why so many Americans think that the worst is yet to come. I'll ask our economic experts when we return.
(COMMERCIAL BREAK)
ROBERTS: Well, you think the economy is bad now, if you're like a lot of Americans, you're afraid that it is going to get even worse. Take a look at the latest USA Today/Gallup poll, a whopping 73 percent thinks that things may get worse. And that is before today's vote took place.
So are they right? Joining me now with their predictions about what we can expect and what we could do about it: Diane Brady, senior writer for BusinessWeek magazine; personal finance expert Lynette Khalfani-Cox, whose Web site, themoneycoach.com -- themoneycoach.net, sorry, answers financial questions; and CNN senior business correspondent Ali Velshi.
So a lot of people, Diane, are talking about whether or not this bailout is even necessary. A lot of anger in this country, A, about what happened on Capitol Hill today and, B, the fact that it's happening at all. Tell us, from your perspective, do we need this bailout?
DIANE BRADY, BUSINESSWEEK: I think what the markets did today show we clearly do need this bailout. The issue is, you have got the election season and people need to answer to constituents who simply don't see the need for it.
ROBERTS: Right. But, you know, what we see on the markets is a lot of psychology, right? People look at what's happening and say, oh my God, the sky is falling. But will the sky really fall, Ali, if this thing doesn't pass?
ALI VELSHI, CNN SENIOR BUSINESS CORRESPONDENT: I don't think so. A 777-point drop on the Dow, significant though it is, could be made up in two days if they wanted it to be. That's not the way I think the average person needs to look at this.
The issue here is whether or not you choose to support this and tell your congressman, so you do to understand the connection here is to the debt market and the connection to the debt market is very...
(CROSSTALK)
ROBERTS: Yes, and that's what Secretary Summers was talking all about just a moment ago.
VELSHI: And that has something to do with you. It is not a removed thing, it's not a Wall Street thing.
ROBERTS: So, Lynette, if -- a lot of people are sitting at home tonight saying, oh my God, look at what happened to my investments today. Give us some practical advice. What do you do if you're in your 20s and you're an investor, if you're in your 30s or 40s and you're an investor, or you're in your 50s, getting close to retirement.
LYNETTE KHALFANI-COX, THEMONEYCOACH.NET: The situation for younger people, frankly, is a lot more positive in terms of outlook than the person who is a pre-retiree. Like Ali said, we can make up that ground, but let's acknowledge, you know, investor psychology here.
That 777 drop, to a lot of investors, felt like 666 -- it wasn't like evil, it was bad. So but bottom line, you can't just panic in a market like this. We saw this two weeks ago. The Dow fell 500 points, 450 points, by the end of the week it was essentially flat. So we know that markets can make up.
ROBERTS: So if you're in your 20s, what do you do?
KHALFANI-COX: Stay in there. It's tough advice to stay invested, but you really have to do it. The pre-retirees...
ROBERTS: Thirties and early 40s?
KHALFANI-COX: Again, you are investing for the long haul. You have three decades plus perhaps before retirement. For retirees, it is a lot tougher. You want to be conservative. You want to be more invested I think in bonds and in cash and that kind of thing.
ROBERTS: But is now the time to start switching your investments?
KHALFANI-COX: Some people really should think about it. If they're at that 60-plus phase...
ROBERTS: Even with these big losses?
KHALFANI-COX: ... I would get a lot more conservative. Those people also have to think about, though, they're going to live possibly another three decades-plus in retirement.
ROBERTS: Diane, what happens tomorrow?
BRADY: Well, I think psychological damage has already been done by two weeks of this at this point. I think the markets are going to continue to be skittish until we see some sort of plan. And the reality is consumers are already changing their behavior. Companies are already changing their budgets. This is one piece of the puzzle.
But I think the fallout on Main Street is already there and probably can't be solved by any plan.
ROBERTS: So people are changing their habits, but here's something that's not fundamentally changing in this country. And that is, we are living well beyond our means. We're going to borrow money for this $700 billion bailout. We borrowed money for the tax rebate. People are, you know, maxed out on credit to the limit.
BRADY: I think that is going to change.
ROBERTS: Do we have to living within our means?
BRADY: I think that -- I think you are already seeing it. Credit card companies are lowering basically the credit that people get. Companies are not lending. So Americans don't have the wherewithal to go buy flat-screen TVs or build new factories at this point.
ROBERTS: And what does that do to the economy?
KHALFANI-COX: Well, obviously, it slows down a lot, but this is one of the things that I disagree with, and even though I think the package needs to be passed ultimately in some form, we haven't addressed the root cause.
They keep saying it's that there are bad loans on companies' books. No, the problem is that consumers have too much debt. They don't know how to manage it. Too much mortgage debt, too much credit card debt, too much student loan debt, to much auto loan debt. And that's why they're so indebted. They can't pay their mortgages. So that has to be addressed as well.
ROBERTS: Ali, quickly, is the world fundamentally changed or two years from now we will look back at this and say, nice little bump in the road?
VELSHI: Markets have a remarkable way of finding a way around these things. There is a credit problem. If we unfreeze it, you might see a much more positive future. But one thing we do have to have in this election is a conversation with both presidential candidates about the country's debt. Lynette is right. We fix ours. The country needs to fix it. And both of these presidential plans increase our national debt.
KHALFANI-COX: And remember, we are paying $400 billion a year in interest alone on our national deficit.
ROBERTS: National debt increases by about $1.1 million a minute. Diane, Lynette, Ali, good to see you, thanks.
A trillion-dollar loss on Wall Street. Warnings of the paralyzing credit freeze rippling across industry giants and Main Street. Still ahead, our political experts tell us what you need to know about the bailout battle. Don't go away.
(COMMERCIAL BREAK)
ROBERTS: More on the financial crisis coming your way in just a minute, but there is other news to tell you about. Randi Kaye here with the briefing.
Hey, Randi.
RANDI KAYE, CNN CORRESPONDENT: Good to see you, John.
The investigation is widening into claims that the Bush administration fired nine U.S. attorneys for political reasons. Attorney General Michael Mukasey today appointed a special prosecutor to investigate Justice Department officials who were involved in those firings.
China's tainted milk scandal has spread to the candy business. Cadbury is recalling its Chinese-made candy sold in Asia and Australia worried about contamination by the chemical melamine. Nine babies have died, and tens of thousands have gotten sick since melamine was first discovered in powdered infant formula made in China.
And in Taiwan, a typhoon literally knocked people off their feet. The storm, packing winds up to 140 miles an hour, is blamed for at least two deaths and a yacht with four Americans on board is missing after sending out a distress call. Some pretty amazing video there.
ROBERTS: Looked like Al Roker.
(LAUGHTER)
KAYE: Not exactly.
ROBERTS: Remember, he blew away in a hurricane once.
KAYE: I do remember that. ROBERTS: Randi, thanks so much for that.
We're going to stay on top of this story. John McCain joins us during the 8:00 hour on CNN's "AMERICAN MORNING," that's tomorrow, with Kiran Chetry and me.
Coming up, I'm going to ask three of the smartest political observers around if the upcoming election will make another try at a bailout impossible.
(COMMERCIAL BREAK)
ROBERTS: Coming up, "LARRY KING LIVE" looks at the financial bailout and there is a lot to talk about. Larry is here with the preview.
Hey, Larry.
LARRY KING, HOST, "LARRY KING LIVE": Oh, you betcha, John. As the House rejects that mega-billion dollar rescue plan, chaos erupts on Wall Street, which means bad things for your street. People are angry and who is the blame? We're going to try to make some sense of the mess. You can ask Suze Orman what this means for you. It's all next on "LARRY KING LIVE" -- Jonathan.
ROBERTS: We're looking forward to it, Larry. Thanks very much.
Straight ahead this hour, our political panel tackles the central question of the evening. Will those members of Congress who revolted against the bailout be forced to change their tune?
(COMMERCIAL BREAK)
ROBERTS: Let's talk about the politics of all of this, joining me is Bay Buchanan, former Romney senior adviser; Roland Martin, a CNN contributor, is with us, as well as Jeffrey Toobin.
Let me throw this question out, and, Bay, why don't you field this. Is there any question why congressional ratings are as low as they are when you see what has been happening there over the last few days?
BAY BUCHANAN, CNN POLITICAL CONTRIBUTOR: No, absolutely not. And it's going down further, I'll guarantee you. And when those congressman show up out in their districts this next two days, if they do dare, they're going to hear from the American people that what happened was the right thing and they don't want them voting for a bailout of Wall Street.
(CROSSTALK)
JEFFREY TOOBIN, CNN SENIOR POLITICAL ANALYST: I don't think that's right.
ROBERTS: Well, what do you think is right? TOOBIN: Well, I think that people are going to be angry. The stock market went down almost 800 points in one day. I think they want action. I think the politics has changed. I think Bay was right. This was an unpopular bailout for the most part, but the drama of today and the disastrous results of today, I think the forces of action are going to gain some political points...
(CROSSTALK)
ROBERTS: What's the word from where you live, Roland?
ROLAND MARTIN, CNN CONTRIBUTOR: Well, look, John, it's very simple, I mean, none of my callers liked this. I mean, none of them liked the bailout, but the only thing that's going to change this is if you see massive firings, if you see layoffs, if you see companies unable to get credit.
See, right now, the average person is saying, OK, the stock market lost 700 points. What does that really mean? When it trickles down, all of a sudden people are having economic problems, then they're going to say, hey, Congress, time to wake up, do something please.
(CROSSTALK)
TOOBIN: Yes, but they already are having economic problems and they want Congress to do something. I don't think that's...
BUCHANAN: Wrong.
TOOBIN: No, that's wrong, Bay?
BUCHANAN: I don't believe it.
(CROSSTALK)
ROBERTS: The losses we saw today, Bay, aren't people going to say, whoa, wait a minute, maybe we need to do something?
BUCHANAN: You know how many people called me or I was speaking to, just random people around this country who just said, isn't this is great? This is terrific. We know there is going to be some tough times, but we don't believe anything they tell us. We don't believe that Congress has our interests in mind when they're going to use our money to bail out these guys that we think are a bunch of crooks in the first place.
MARTIN: Hey, John, here is the reality, in America, we are a reactionary society. And so you hear people actually say, well, the Iraq War, we heard all this other kind of different stuff and look what happened.
It is only going to take a massive meltdown for Americans to go, wow, they were serious. And so you have members of Congress who are saying, hey, this might not actually work. That's the only way people are going to react. And so that's how we are. We see want to see the crumble, then we go, hmm, might want to fix it now.
ROBERTS: So, Jeffrey, what's...
BUCHANAN: And no one...
ROBERTS: Let me just go to Jeffrey for a second here, Bay. What's the impact out on the campaign trail, on the presidential circuit?
TOOBIN: I think it helps Obama. John McCain is effectively the incumbent in the race and regardless of who is responsible, this is a mess in Washington held which is being held against the incumbent. The Republicans have been in charge for the last eight years, certainly in the presidency.
I think if you look at the last two weeks, Obama has been soaring in the polls and it's because of these economic problems.
ROBERTS: Bay, we've just 30 seconds left, final word to you. Do you think that people will be in more of a mood to punish the party in power because of all this?
BUCHANAN: There is no question that it's going to hurt McCain. He is going to have to use something very bold, dramatic, different, to really reach the American people and show that he understands their anger and concern.
But the fact that he's for this bailout is not going to help him.
ROBERTS: All right.
MARTIN: How about the suspending his campaign again?
TOOBIN: I think Bay is right about that.
MARTIN: How about suspending his campaign again? That really worked the first time.
(LAUGHTER)
ROBERTS: All right. Roland Martin, Jeff Toobin, Bay Buchanan, thanks for being with us. We'll be right back.
(COMMERCIAL BREAK)
ROBERTS: Before we leave you, a special programming reminder, Senator John McCain will be joining us bright and early tomorrow on "AMERICAN MORNING" in our 8:00 a.m. hour. Join Kiran Chetry and I every weekday morning beginning at 6:00 a.m.
That's going to do it for this edition of the ELECTION CENTER. John Roberts in for Campbell Brown. She's back again tomorrow. "LARRY KING LIVE" starts right now.
