Return to Transcripts main page

Issue Number One

New Fears About Unemployment; Are We in a Recession?; How Members of Military and Their Families Feeling Financial Stress

Aired March 20, 2008 - 12:01   ET


GERRI WILLIS, CO-HOST: New fears about unemployment in this country. We will finally answer the question, are we in a recession? And how members of the military and their families are feeling the financial stress.
ISSUE #1 is the economy. ISSUE #1 starts right now.

You need proof the weak economy is hurting the labor market? Well, you've got it. Jobless claims are up, higher than expected. New figures from the Labor Department show 378,000 laid off workers filed for unemployment benefits last week. Now, that's 22,000 more than the previous week and the highest level in more than two months.

And more job cuts reportedly on the way at Citigroup. "The New York Times" says Citigroup -- that's the nation's largest bank -- plans to lay off 2,000 investment bankers and traders this month. That's added to the 4,200 job cuts company-wide this year.

And finally some good news. Oil prices today dropped below $100 a barrel. The retreat driven by data showing U.S. demand from petroleum products is waning amid high record prices.

ALI VELSHI, CO-HOST: Thanks, Gerri.

Millions of Americans are looking forward to rebate checks. They're headed out in the beginning of May, but will they help rescue the economy? Kate Bolduan has that story.


Well, what we're hearing is, you know, the rebate checks are getting set to go out, as we hear, as early as May 2nd. But as these checks start heading into the economy, into the hands -- into the hands of Americans, the big question is, will they put it back into the economy or will they just use it to pay down debt?


BOLDUAN (voice over): John and Doreen O'Brien say they're like millions of people.

DOREEN O'BRIEN, CONSUMER: Well, we cut back on Christmas. We didn't spend a fraction -- maybe a quarter of what we did last year.

BOLDUAN: Struggling to make ends meet for their family of five, and some help would go a long way. JOHN O'BRIEN, CONSUMER: With the way the economy is, absolutely huge.

D. O'BRIEN: A big boost.

J. O'BRIEN: A big boost.

BOLDUAN: Consumer spending is key to rescuing the weak economy. Federal Reserve Chairman Ben Bernanke said today giving a little extra to families like the O'Briens is a good idea.

BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: Getting money to people quickly is good and getting money to low and moderate income people is good in the sense of getting bang for buck.

BOLDUAN: Tax rebates are a leading proposal to do just that.

But will they work?

The nonpartisan Congressional Budget Office says yes.

PETER ORSZAG, DIRECTOR, CONGRESSIONAL BUDGET OFFICE: Rebates are a relatively effective way of boosting spending.

BOLDUAN: In the 2001 recession, $38 billion in rebate checks went out. Most people received between $300 and $600. No dollar amount has yet been set this time around.

ORSZAG: Something like a third of the money was spent within three months and about two thirds of the money was spent within six months, which is pretty good for -- as these things go.

BOLDUAN: But some economists say the evidence isn't so clear.

PROF. JOEL SLEMROD, UNIVERSITY OF MICHIGAN: One third spending is a lot lower than I think most people had expected.

BOLDUAN: Professor Joel Slemrod found a majority of people in 2001 decided to save the money or use it to pay off debt rather than spend it.

SLEMROD: We really shouldn't expect miracles from a tax package or stimulus package of this magnitude.

BOLDUAN: But like the O'Briens, who said they'd spend a rebate, most everyone agreeing something needs to be done, and soon.


BOLDUAN: The final stimulus package does include rebates of up to $600 for individuals, and $1,200 for joint filers, along with some additional money for families with children under the age of 17. But the big question remains, Ali, what will Americans do with these checks?

VELSHI: Yes, that is the big question, Kate. You know, ISSUE #1 here, CNN and Opinion Research have polled that 74 percent of Americans already think that we are in a recession. And most economists we've talked to do, too. The last time these rebate checks were issued In 2001 we were looking at a very different economy back then, weren't we?

BOLDUAN: Yes. And that's the thing that's kind of the big question mark that we all have to take into consideration.

In 2001, we were coming off of the burst of the tech stock bubble. This time around we're dealing with the downturn of the housing market. And economists say these are very different economic times, because now, dealing with this housing market, this may have longer lasting, more severe effects that could be more resistant to a quick fix. So we don't know really how this is all going to turn out quite yet.

VELSHI: All right. This continues to be the top story.

Kate Bolduan in Washington, thanks very much.


WILLIS: You are so much a part of ISSUE #1. We want to hear from you right now -- Poppy Harlow is live on the CNN Money set with today's "Quick Poll."

Hi there, Poppy.


Well, as Kate just said, the check's in the mail. Almost.

The IRS will begin sending out 130 million tax rebate checks on May 2nd. All that money comes from the $170 billion economic stimulus package.

Single Americans who make less than $75,000 a year will get rebate checks of as much -- up to as much as $600. Couples making under $150,000 annually will get rebate checks up to $1,200.

So we really want to know, what are you going to do with that extra cash? Here's our "Quick Vote" question today. What do you plan to do with your tax rebate check? Spend it, save it or pay off debt?

Log on to to vote, and we'll be back a little later with the answers -- Gerri.

WILLIS: Thanks for that, Poppy.


WILLIS: For members of the military and their families, this is an especially tough time. The tax rebate might help, but it definitely is not a permanent solution for any of their pressing financial issues.

CNN's Rick Sanchez is live at Ranger Joe's in Columbus, Georgia, near Ft. Benning.

Hey there, Rick.

RICK SANCHEZ, CNN CORRESPONDENT: We're talking to a lot of soldiers. Some of them getting ready to go to Iraq, some of them coming back from Iraq. And there's two questions that we're going to be examining with these guys, Gerri.

One of them has to be, obviously, well, how is the economy affecting them? How are they any different, if they are, from the rest of the population that seems to be feeling a little bit of a pinch/

The other thing that we're going to be talking to them about is really more of the emotional side to this. You know, there's statistics that are out now like the one we had on the air during the number one issue yesterday around noon, which seems to indicate that most Americans are convinced that the Iraq war has not been good for the economy. Seventy-five percent or so are almost saying that, no, it's actually been bad for the economy.

Well, that's -- how does that play with soldiers that are coming back now, to be a part of this economy? So we're going to be talking about that and ISSUE #1 just outside the doors of Ft. Benning, Georgia.

Back to you.

WILLIS: Rick Sanchez, thanks for that.

We'll be back with you in a bit.

VELSHI: All right. Coming up, are we in a recession? Gerri said we'd answer it, and we will. We're going to answer that question once and for all and figure out where we go from here.

Plus, how is the economy changing the way you live your life, from shopping to eating out, and going to the movies?

And we want to hear from you. E-mail And we'll get to your questions.


VELSHI: All right. You hear the word thrown around a lot these days, "recession." A recession has a very specific definition.

But for those of you sitting at home or in your office, or maybe on a treadmill, it might just mean that times are tough out there for you and your family. So we want to clarify right now if we are in fact in a recession or headed to one, and what it really means to you.

Lakshman Achuthan is with the Economic Cycle Research Institute. He works with a group of people who do nothing but track economic cycles. They look at everything out there and decide where the economy is going. Lakshman, you have been tracking this and we have been talking constantly. You were here just two days ago discussing where we're going, and now you say that you have an answer, you know where we are.

LAKSHMAN ACHUTHAN, MANAGING EDITOR, ECONOMIC CYCLE INST.: Yes. A recession is unavoidable at this point. So that's it.

We're going into recession. A year or so from now, when the dust settles we'll get the exact date of when it occurred. But that's irrelevant. The real point is you're saying that we can't avoid it anymore. Now, we haven't said that, mind you, since early 2001.

VELSHI: Let's take a look at the chart that you -- you compile all of the pieces of data we talk about on an ongoing basis. This chart goes back to the '70s. And the recession is where those lines go below the zero mark. Is that correct?

ACHUTHAN: Yes. Well, specifically where you have those shaded areas. The line is the weekly leading index. It comes out every Friday. It's the best leading indicator of the economy. It doesn't gives you false alarms.

You can see the recession in 2001, how far negative that line goes. And to the right of the screen you see the weekly leading index has gone down that far.

That means that regardless of what we do, right, policymakers are pulling out all the stops right now. What they're doing at this point is mitigating how far the downturn -- the recession goes. But they are not avoiding it. And that's...

VELSHI: And you feel like they could have done more? They could have done -- you know, we all complained, why won't these folks admit what Americans have been feeling? Two-thirds -- no, more than that -- three-quarters of our respondents to the CNN/Opinion Research poll said we're in a recession.

Americans have been feeling that for some time. Maybe if the Fed had figured this out earlier they could have done more, or the government?

ACHUTHAN: Yes, we didn't -- this is -- we didn't have to be here. It's ironic. We just did not have to be here.

And in fact, because of all of this pessimism on the economy that has been around for a couple of years -- it is a little premature -- it actually gave policymakers a singularly unique opportunity to avert a recession. And this is the thing I think that policymakers don't get.

Because of the negativity, business managers have kept their inventories very low. Now, this is a little technical, but the reason you have a recession, half of the recession is paring down inventories.

Right now the cupboards are bear. So, if policymakers had been quick in stimulating the economy, say, late last year, we could have had a nice pause in this slowdown, which might have given us some time to avert the recession. And that's the problem.

VELSHI: Tell them then now what you know, because you look at all these numbers.


VELSHI: What do we do now to avoid the worst of it? What do we do to start to work our way out of it?

ACHUTHAN: Well, there's a couple of things. First off, the last two recessions were eight months long. So, let's say we're getting into a recession right around now, maybe it started a month or so ago, or it starts this month or next month. It's probably -- there's a chance it's over by the end of the year. We have to watch the weekly leading index for an upturn to confirm we have an upturn out there, but likely a lot of what they're doing right now is sowing the seeds for the next recovery.

What they really should do, what I would love to see, is for them to actually do what they said. Time is of the essence. You don't say time is of the essence and then say we're going to give you a rebate check in six months. That just doesn't fit.

You have to move policy very, very quickly. If there is a lesson learned here, it's that the business cycle does not wait.

VELSHI: Do we need a bigger rebate check?

ACHUTHAN: No, you do not need a bigger rebate check. We're fine as it is. Policymakers are on the game right now. But the proverbial phrase "A stitch in time saves nine," now you're on your 10th stitch. If we had just worked earlier, I think we could have avoided some of this.

It's non-financial services which is tipping (ph) in right now, and that's like...


VELSHI: Lakshman and his group have not gotten us wrong. The Economic Cycle Research Institute has never had a false alarm on a recession, so I think we can be comfortable, as Lakshman said, that we're either in one now or headed into one.

Lakshman Achuthan, thanks for joining us.

ACHUTHAN: Thank you.

WILLIS: A recession can change the way you spend your money. And there are new polls showing you're doing just that.

For that, let's go to CNN Senior Political Analyst Bill Schneider. He is live in Washington, D.C.

So, Bill, tell us, are people beginning to cut back their spending due to the economy?

WILLIAM SCHNEIDER, CNN SR. POLITICAL ANALYST: Well, the answer is yes. And this is important, because when you ask people their opinion, is there a recession, that's one thing. We also asked in our most recent poll over the weekend not about opinion -- not only about opinion, but about their behavior, what have they actually done to reflect the impact of a recession?

And the answer is they've cut back spending on a wide variety of things that they have spent money on. At the top of the list, leisure activities such as going to the movies and going out to eat in restaurants. They've postponed -- 61 percent -- it's not in this list, but 61 percent have postponed major purchases such as furniture and appliances. And 59 percent said they've cut their spending on clothing.

Almost half say -- and this is probably most jarring -- that they have cut back spending on heat and electricity for their own homes. And, if you look just at people who earn less than $50,000 a year, 65 percent -- that's nearly two-thirds -- nearly two-thirds of relatively low-income people say they have cut back spending on heat and electricity for their homes. And 30 percent of all Americans, and nearly half of lower-income Americans, say they have cut back spending on food and medicines.

Those are the essentials of life. When people start cutting those things back, you know they're feeling the impact of a recession.

WILLIS: Wow, Bill. Those are worrying statistics. Thank you for those numbers.


VELSHI: Coming up, imagine this -- a knock on your door. It's the sheriff telling you to get out of your house. It's a growing nightmare for many Americans.

Plus, the security breach involving millions of credit cards. We'll tell you how to protect your identity.


WILLIS: It's a knock on the door and you have to get out. It is a very real nightmare for a growing number of homeowners.

CNN's Rusty Dornin has that story.


RUSTY DORNIN, CNN CORRESPONDENT (voice-over): This is where it ends...

UNIDENTIFIED MALE: Sheriff's Department.

DORNIN: ... police executing an eviction order for homeowners who can't make their loan payments. It's happening in every city across the country as millions of Americans lose their homes to foreclosure.

Nessia Jones of Atlanta went to legal aid for help, fearing she may be next.

(on-camera): If this doesn't work and you lose this house, what's next?

NESSIA JONES, HOMEOWNER: We will be outside. We have nowhere to go.

DORNIN (voice-over): She remembers the day she moved into her home 26 years ago.

JONES: We were happy. We were finally going to have something of our own.

DORNIN: Those were brighter days. Now Jones cares for her 32- year- old disabled daughter. They live on $1,250 a month in Social Security disability.

JONES: Chelsea!

DORNIN: In October of 2006, a mortgage company offered her refinancing through two new adjustable loans. She needed the money. Now she's paying for it.

(on-camera): About how much altogether did your payments go up as a result of this refinance?

JONES: About $400, $500 almost.

DORNIN (voice-over): According to Jones and her attorney, Karen Brown, the mortgage broker falsified Jones' income on the loan papers.

KAREN BROWN, JONES' ATTORNEY: On one page, the loan application said that Ms. Jones wasn't working. On another page, it said she's getting monthly employment income of $3,950 a month. You can't get employment income if you're not working.

DORNIN: There were other discrepancies as well, and the broker's license has since been revoked. Only Jones didn't discover her payments went up until last February.

(on-camera): So you weren't able to pay these payments as soon as they occurred?

JONES: No. Because I had had to get help from my church the second and third month, and from there on I haven't been able to pay the second mortgage.

DORNIN (voice-over): Frightened she would lose her home, that's when she called Legal Aid. Her attorney says nearly every single case that comes to them is exactly like Nessia Jones.

BROWN: They're devastated. They're desperate. They don't want to lose their homes. they have been living in them for 30, 40 years. And they come to us asking for whatever we can do to try to help them. And we do the best we can.

DORNIN: Jones' case was used as an example in a recent press conference by Georgia legislators open the mortgage tries here.

VINCENT FORT, GEORGIA STATE SENATE: This is the greatest foreclosure crisis, mortgage crisis, since the 1930s. It's unprecedented in the history of this country for the last 70 years.

DORNIN (on-camera): Georgia has the fastest foreclosure rate in the country, just 37 days. And look at this 7,000 foreclosures scheduled for the Metro Atlanta area for the month of February. That's the highest rate ever.

(voice-over): Statistics that become the faces of people like merchandise Nessia Jones. The bank rejected one settlement offer by Legal Aid, and Jones' house is in legal limbo. In the meantime, unable to pay the heating bills, she bundles up, the house falling into disrepair.

(on-camera): You're hoping to hold onto this house as long as you can.

JONES: I'm going to fight going down. I'm not giving up. I can't.

DORNIN: Millions of homeowners fighting like Jones in a crisis economists say every American will pay for, even if their homes are safe.

Rusty Dornin, CNN, Atlanta.


WILLIS: How many times have we heard that story? It is so sad to hear.

VELSHI: It never gets -- you never get used to it. It never gets better to see people -- it is kind of like losing your job, losing your home. The statistics don't tell you -- they don't give you the feeling of somebody coming to your house and getting you out of there.

WILLIS: No, they don't.

VELSHI: And so fast.

WILLIS: You know, I just want to say for people out there who are worried about this, you know, each time you miss a payment your credit score is going down. And in just 90 days, Ali, three months, a notice of default gets filed with a local courthouse. You've got to act fast and call that lender, get help right away.

VELSHI: Right.

WILLIS: Right?

VELSHI: You think of it as a long process, but as Rusty says, it's not.

We're taking a break.

Coming up, we're back out to Rick Sanchez. He's talking to military families about how they are dealing with these tough times.

WILLIS: And we want to hear from you. Our address, We'll answer some of your e-mails in just a bit, right after a check of your latest headlines.



WILLIS: Times are tough right now. And for the folks in the military, it's even tougher.

CNN's Rick Sanchez is live in Fort Stewart talking to some of the folks there.

Hey there, Rick.

SANCHEZ: Yes. And you wonder sometimes. I mean, some of these guys are just starting to come back.

We have an Afghan soldier who's joining us in this conversation, just got here from Afghanistan.

Sergeant Major, you're going back to Afghanistan in, what, 10 days?


SANCHEZ: This weekend you're leaving. So you don't spend a lot of time here.

UNIDENTIFIED MALE: I've been here for a week.

SANCHEZ: Paul runs this store. This is Ranger Joe's. And Ranger Joe's is a place that basically all the folks here at the military installation come to buy their goods.

And this is Jack Pegano (ph). Jack Pegano and I are old friends. He's a military strategist. He and I go way back.

This conversation is about though Americans are feeling the pinch with the economy right now. The question is, are the soldiers feeling the same thing? Are they any different?

Jack, start us off.

No, I think the soldiers, especially -- I'm in Afghanistan. They have a mission. You know, no one wants to be tested more than a soldier. No one wants peace more than the soldiers.

RICK SANCHEZ, CNN CORRESPONDENT: Is the test for them coming to America and finding that the economy has gotten bad? Is that a test as well?

UNIDENTIFIED MALE: I don't think . . .

SANCHEZ: That you can't sell a house in the United States right now, all things considered?

UNIDENTIFIED MALE: They're not worried about the economy. They're worried about a mission. Over in Afghanistan we have a mission, train and mentor the police in the army. And that's their mission.

SANCHEZ: And so you get so entrained in that, that you basically don't think domestically?

UNIDENTIFIED MALE: We're not thinking about it. We understand there's people here are hurting. We have a mission. We have one (INAUDIBLE). Get this great sergeant major and his army up (ph), because if you have security, you have hope and you have freedom and you have a future.

SANCHEZ: I'm going to challenge you on that in just a little bit, but let me go around the group here and find out.

Paul, you see soldiers coming in here all the time. Are you starting to see some of the guys that are getting hit economically?

PAUL: Oh, yes. In fact their families are here and facing the economy. That's why as civilians in the civilian community, we need to minister to these families and take care of them.

SANCHEZ: Is it what? Price of goods? Gasoline?

PAUL: Price of goods. Price of gasoline. They're on a fixed income. So whatever they have, they have. If prices go up, they still have the same amount of money.

SANCHEZ: Do you see them doing things to get by that maybe they didn't do before?

PAUL: Oh, yes. A lot of their wives are going out and getting jobs. Some of them hold down two jobs. Some of them have a weekend job and have a week job.

SANCHEZ: Sergeant Major, I know you don't spend a lot of time in the United States. But when you come back from Afghanistan from being overseas, do you see a difference in the way things are now perhaps to what it was a year ago or two years ago?



UNIDENTIFIED MALE: I've been gone since January of '07. And just been back here for a week. And the prices on everything from gasoline to beer to Diet Coke, they've all increased. It's going to be a -- I don't know how I'm going to manage my finances when I come back.

SANCHEZ: But you do see a difference?

UNIDENTIFIED MALE: Oh, yes, drastically.

SANCHEZ: Let me ask you a question. And this is something that's troubling to a lot of folks and I know it's going to be troubling to you. Study out yesterday, poll, that seems to indicate that seven of every 10 Americans believe that the Iraq War has drained us economically. That it's actually costing the United States. That part of the reason we're in an economic situation we're in now is because of the war in Iraq. How does that make you feel as a soldier?

UNIDENTIFIED MALE: It bothers me. It bothers me as a person, as a father, and as a husband. But as a military soldier, I'm going to do what our country sends us to do. And we are directed to go there to do the mission that we were given to give. And we're going to stay there until our leaders tell us that mission is over with. That's the job of a soldier.

UNIDENTIFIED MALE: And, Rick, the key is, if we cut and run out of Afghanistan, we have something good here. Here is a sergeant major. He is changing the way people are looking at the army.

SANCHEZ: Well, let me ask him the question then. Americans think that we should help your country. And we're grateful for you coming over here and showing your appreciation. But they're also concerned that maybe we're not spending enough on ourselves in an effort to help you and the Iraqi people. What is your response to that, Rashun (ph)?

RASHUN: The fact that Afghanistan people, Afghanistan was one like example of Afghanistan was like one of the sick person, they were only the American, the good doctor this dark (ph) medicine and that sick person we are every day is that sick person is getting better.

SANCHEZ: So what do you say to an American? What do you say -- sergeant -- what do you say, sergeant major, what do you say to an American who says, I want to help your country, but I want to help myself first. And right now we're going through a tough time. We may have to put you on the back burner. What do you say to that American?

RASHUN: I'm saying to American, the American (INAUDIBLE) great helper in Afghanistan. And the Afghanistan people, Afghanistan economy, are in the education, in democracy. They do great thing for the people of Afghanistan. And (INAUDIBLE). And I hope the Americans keep doing what they are great doing in Afghanistan.

SANCHEZ: Well, thank you, sir. That's -- we appreciate you saying that and expressing just how much you need the American support. And certainly something from your perspective that makes sense.

Gentlemen, we're out of time, I'm being told in New York, but it's a great conversation. We're glad we had a conversation like this so you guys can air your feelings on this. And it's something Americans are talking about and something military families are talking about as well.

Gerri, back to you.

ALI VELSHI, CNN ANCHOR: Rick, I'll take it back from you. Thank you so much.

Yesterday on ISSUE NUMBER ONE, you talked to us about things we hadn't heard from truck drivers. Today, I mean, I've never heard from a sergeant major in the Afghan forces. So thanks again.

Don't forget to watch Rick this weekend on his own show Saturday and Sunday at 10:00 p.m. Eastern. He'll take a look at the controversial issue of racism in America, the stories that people don't want to talk about. Rick is good at getting people to talk about the things they don't want to talk about. That's Saturday and Sunday at 10:00 p.m. Eastern right here on CNN.

GERRI WILLIS, CNN ANCHOR: Up next, what you can do right now to put yourself in a better financial situation. And for more on your finances, check out special report "Right on Your Money." Get tips on how to better manage and invest your money with video tutorials and interactive guides. You can also read or share I- Reports with others. That and lot more at


VELSHI: Well, the economy is issue number one across the country, but money matters are particularly difficult to navigate for those serving in the armed forces.

WILLIS: Melissa Long from Live joins us now with some financial advice for our troops.

Melissa, when you're deployed, priority number one is obviously focusing on your job as a soldier. But how can you remain in control of your finances when you're so far from home?

MELISSA LONG: Well, understandably, it is a challenge. It is a stress. There's a program called Military Saves and you can find out more about it online,, And it is a social marketing association that has been developed, part of the Consumer Federation of America originally.

And I was speaking with the director of the program and she says that during her five years counseling, she was a chaplain right after 9/11, five years counseling, 90 percent of the financial problems really were paramount for so many of the people in the military. And 90 percent of the people that came to her had a financial component to their issues on why they were seeking counseling. So here's some advice right now from Military Saves. And very basic advice, especially if you happen to be single.

Make sure someone back at home is taking care of your finances, really looking into things. Make sure also that this person has good financial skills. Of course, not everybody pays his or her bills on time. Make sure somebody is going to be diligent about looking after your finances if you are leaving them in charge.

Plan ahead. Think about the fact that you may be deployed tomorrow. Always consider it could be to a classified location as well. Automatic bill payments. Seems basic. But put it in place if you can because you may be at a place where you don't have access to your online banking accounts.

Pay a little bit extra. Say you have a regular payment, it comes due every month and it's $50. Create a cushion. Pay $60 just in case, according to Military Saves.

And also, yes, a home, it's the American dream, but it may not be a wise investment because, of course, people in the military often get relocated, as you know, Gerri.

WILLIS: Well, Melissa, that's right. You know, in fact, many Americans have been hit hard by the mortgage meltdown. You say a home may not be the wisest investment for a soldier, but are there some other options out there?

LONG: Well, there are other options because you may be forced to take a loss if you do get stuck with one property or multiple properties. Consider the savings deposit program. It is for people in combat zones only. Just a small group of military personnel eligible. A $10,000 investment, a 10 percent interest rate. That's cheap.

Also consider the T.H.R.I.F.T. savings program. It's the equivalent to a 401(k) that we'd be accustomed to, of course, in corporate American. And also, if you are in a combat zone, hazardous duty, you get up to 30 percent more. So do invest this wisely. Don't spend it on a plasma TV or a new car. Investment maybe in an IRA.


WILLIS: Melissa Long, great information, from Live. Thanks so much.

Live events, breaking news and the day's top stories online any time at

No matter who you are, financial literacy is important. After all, no one should know more about your money, how much you have, how much you need and how much to save than you.

VELSHI: John Hope Bryant is the founder, chairman and CEO of Operation Hope. It's a group completely dedicated to enhancing financial literacy in this country. He joins us now from Los Angeles.

John, thanks for joining us. You are really focused on, at this point in time, helping people out, the people we've talked about who are possibly looking to get a mortgage, they're in a mortgage and maybe having some trouble. You're completely occupied with trying to help them, are you not, right now?

JOHN HOPE BRYANT, FOUNDER, CHAIRMAN & CEO, OPERATION HOPE, INC.: Absolutely. We actually launched a mortgage crisis hotline here in Los Angeles and with the city council president, Eric Garsetti (ph), and the mayor. And we got, oh about 30 days, we got 10,000 calls. We now have, since January 18th, had 20,000 calls. And I'm proud to say that there's hope out there. There's a rainbow after this storm. We have several success stories. One person who had a 13 percent mortgage, it had gone up from 8 percent, it adjusted to 13 percent. They couldn't pay it. We were able to negotiated that down to 4.5 percent fixed. I mean I was so stunned by that I told my people, I wanted one of those mortgages myself.

VELSHI: Yes. All right, what do you do? What are the steps for people who are involved. First of all, anybody who's looking for a mortgage right now, before you're in trouble, let's separate that, those people who are looking to buy and in some parts of the country that might be something people are thinking about because of where home prices are. Tell me what they should think about right now so they don't get into a problem?

BRYANT: Well, the biggest shocker for me was that people -- many very, very sophisticated and intelligent people -- and we're not talking about poor people here, we're talking about middle class folks who just either bought too much house or, more shockingly, didn't ask what the interest rate was, they asked what the payment was. And the biggest problem with this subprime crisis is payment shock. You never ask what the payment is when there's an interest rate attached.

And people bought homes like you'd buy automobiles. And you shouldn't buy an automobile that way. People buy automobiles like you buy an iPod. And you shouldn't buy an iPod that way. If you put an iPod on a credit card or make a minimum payment on it, it will cost you $5,000 over time. Can you imagine if you put six zeros with that, you have an economic tsunami on your hands.

VELSHI: All right. So now those people that you are helping out, the people that call you and they've got 13 percent to 14 percent double digit interest rates and you're helping them bring those interest rates down. What should people do? We've been hearing about people getting foreclosure notices or even notices from hope now, the government, and private enterprise organization that's helping people refinance mortgages. They don't want to open it. They don't know what they're supposed to do. What should they do?

BRYANT: Well, I mean, the first thing to do is to not bury your head in the sand. There's two taboos used to be in this country, it was sex and money. Well, the taboo is now squarely on money. We love it, we don't understand it. You've got to open that mail. You know there's a joke in my community, I don't know nobody with a 1-800 number. Well, we've got to break that taboo. You've got to return that phone call because what's bad now will just gets worse over time.

And you'll find the lender doesn't want your house. Let me rephrase that. A credible lender doesn't want your house. A credible car loan lender doesn't want your car. They want a payment. They want a relationship with you. You got to call them and tell them what you can do. And we found that increasingly these folks were trying to work it out. It hasn't been that way all the time, but increasingly now in these economic times, lenders increasingly want to work it out.

VELSHI: All right, John, thank you for that. Thank you for bringing our viewers a little bit of hope. John Hope Bryant joining us from Los Angeles. Thanks.

WILLIS: Coming up next, why your cell phone is the latest threat in the identity theft war.

VELSHI: Plus, your e-mails and answers to your questions. E- mail us at


VELSHI: Well, high gas prices may or may not be changing your driving habits, but it's actually forcing police in Stanford, Connecticut, to leave their cars behind and set out on foot. You heard that right. The Stanford police are now requiring officers to walk on more of their beat to cut down on costs. The department's gas budget jumped $150,000 in one year, about 33 percent, and that got their attention. Among the other measures being taken are the banning of idling of squad cars.

WILLIS: Well, this one's all about you, your e-mails, answers to your questions. To help us do just that, Doug Flynn with Flynn Zito Capital Management and David Bach, author of "The Automatic Millionaire."

Welcome to both of you guys.

Let's just jump right in to the first e-mail from Mark. He says, "I'm a 20-year-old in the military. I have about $10,000 in a savings account that is making very little interest. I only have one year left of my less-than $20,000-a-year job before I try to make it in the real world. What are the steps I should take to prepare myself financially?" And he notes that he's transitioning into a weak economy.

David, tell me what you think.

DAVID BACH, AUTHOR, "THE AUTOMATIC MILLIONAIRE": You know, here's the key and here's the beauty. He's 20 years old. He's so young. So it's about starting with the right habit on day one when he gets back here with his first job. And that habit, Gerri, is that he needs to pay himself first.

So even if he's only making $20,000 a year, and maybe his next job will pay him more, the habit is, pay yourself first one hour a day of your income. And he needs to do that automatically. So whatever job he gets, even if it's at Starbucks, you're taking that money and putting it automatically right into his retirement account, one hour a day of his income.

WILLIS: You're saying, save, save, save. Put some money aside for a rainy day.

Let's move to the next e-mail. It's Joe in Texas who asks, "should I cash in my stocks and invest in rental property?"

Doug, I want you to jump in on this because this is a question a lot of people ask me. You know, the stock market, it doesn't seem to be going anywhere. Should I just try a totally new asset class?

DOUG FLYNN, CERTIFIED FINANCIAL PLANNER, FLYNN ZITO CAPITAL MGMT.: Well, what you would be doing is selling your stocks at a lower point and probably real estate isn't at its lowest point. So I would think it would probably be a mistake to do that right now. You might possibly want to wait until the real estate gets even lower and your stocks come back a bit. But at the end of the day, what you really have to do is take a look at that opportunity. If that specific opportunity is very good, you might not want to pass up on it. But as a general rule, I would say that's probably not a good idea at this time.

WILLIS: OK. So don't sell at lows. I love that advice.

Let's go to Kevin. He has a question. "I have some amount of money in a savings bank account. Now the dollar is falling sharply and inflation is a big concern for everyone. What should I do with my money to beat inflation?

Now, David, everybody has this question.

BACH: This is tough right now because the rates are so low, as you just said. So, first of all, let's talk about online rates nationally. You can go to the online banks right now, and those include,, These three, primary banks are offering a little bit over 3 percent. But here's how we can get a rate higher than that. And it's interesting. The key right now is to go local. So locally, open up your newspaper, go into your local bank. Now it could be a branch of a national bank, but they have special deals locally. Ask for the new account special because what they're offering is . . .

WILLIS: The new account special. Is that going to be higher than 3 percent? Because I've got to beat (ph) 3 percent to beat inflation.

BACH: It's up to 6 percent now. So some banks are offering 6 percent for six months for new accounts. Now there are catches. And those catches includes, sometimes you've got to put money every month automatically for six months. So read the fine print.

WILLIS: OK. All right. Well, that's great advice. I love that. I'm going to try that myself.

Barbara has a question. She says, "you are missing a major problem: heating oil. I am a senior trying to live on Social Security and a small pension. A year ago I was doing fine. The biggest attack on my budget was the horrendous rise in the cost of heating my very small house." She's paying over $200 a month, trying to keep the thermostat down.

Tell me, Doug, what can she do? FLYNN: Well, I don't know if that's $200 per month for 12 months of the year or just during the heating season and that's always a concern. Everyone should be on a budget plan with their provider of heating oil. And what that does is it just evens out the cash flow and helps you get a better handle on your monthly expenses. Yes, you can't -- if it is a monthly, the year round, that seems kind of high. And I don't know where she's going to have to cut, but that's something that has to give. But take a look at that.

WILLIS: It's tough for folks. You know, one thing you can do -- and say this all the time -- get some insulation. Insulate the house. Make it as tight as you can make it so you can save some money on those bills.

Kim has a question. She asks, "I have a HELOC," a home equity line of credit, "that is tied to the prime rate. The loan is currently locked at 7.25 percent. With the prime rate now at 5.25 percent, it's now tempting to unlock the loan. Is this a good idea?"


BACH: Well, I'm against having a loan where the rate floats. But if she can . . .

WILLIS: You don't like adjustable rates at all?

BACH: I never have liked adjustable rates. So here's what I would say to her. If she can unlock and relock, so if she can take her 8.25, unlock it and get the new rate at 7.25 and lock it again, then she's in great shape. But don't unlock it and have it float because rates will go back up again eventually, I assume.

WILLIS: All right, guys, David, Doug, thank you for that. We really appreciate your time.

Up next, a major security breach involving millions of credit cards. How to protect your identity when we come right back.


WILLIS: Well, it's time now to check back in with Poppy Harlow for the results of today's quick vote. She's on the CNN Money set right here in New York.

Hi there, Poppy.


We asked and more than 28,000 people answered when asked, what do you plan to do with your tax rebate check that is coming from the government's economic stimulus package. Here's what you said. Nineteen percent of people said they're going to spend that money. Thirty-two percent of people are going to save it. And 49 percent of those polled say they're going to pay off debt.

Now keep in mind, the government really wants you to be putting this money back into the economy to try to boost the U.S. economy. And also remember that you must first file a 2007 tax return in order to get that nice lump of cash.

Back to you, Gerri.

WILLIS: I like that answer. That's a good answer. OK, so, Poppy, tell me, you are traveling for us tomorrow. Where are you going?

HARLOW: I'm traveling. I'm heading to Minnesota, to the Mall of America, the biggest mall in the country, to talk to people about how they're spending their money and to see how the stores and the restaurants and that big amusement park in there, how they're all doing with the weak economy. And maybe they're doing better if foreigners are coming in because the dollar is cheaper and they're getting deals. We're going to check that out for you. We're going to be live for you from the Mall of America tomorrow.


WILLIS: Poppy, thank you for that.


VELSHI: All right, we told you yesterday about two grocery store chains, Hannaford Brothers and Sweetbay supermarket involved in a massive credit card data breach. The stores say 4.2 million credit card numbers have been exposed and could be venerable to fraud. Makes you think about what you need to do to protect your identity. Bob Sullivan is the author of "Your Evil Twin: Behind the Identity Theft Epidemic" and also the founder of the Red Tape Chronicles Blog. You know, somebody, Bob, can take my identity as long as they take my payments along wit it. Welcome to the show.

What do you do, Bob, what can you do? Because really most theft doesn't come out of your garbage or the things you throw away, it's stuff like this. It's companies that you either do business with or that you work with that lose your stuff.

BOB SULLIVAN, AUTHOR, "YOUR EVIL TWIN: BEHIND THE IDENTITY THEFT EPIDEMIC": That's correct. You know, in the past couple of years, more than 100 million pieces of information have been leaked or stolen by criminals. So the identity theft onslaught continues. I mean there have been some technology improvements and I think banks are a little bit better, for example, at catching credit card fraud as it's going on. People are familiar with those calls.

But for the most part, that's not a preventative measure, it's a rescuing measure, if you will. There really isn't a lot people can do to prevent their identities from being stolen. Instead, I think it's really important for people to focus on the fact that it really might happen and what to do when it happens and how to recover from it quickly and easily.

VELSHI: It's totally one of those crimes that you don't associate with unless it happens to you or you think it can happen to you. What should you do if you believe you might be a victim of identity theft either because you suspect there's unusual activity or you've heard on the news that somebody lost identity that could be yours.

SULLIVAN: Well, there's different kinds of identity theft. The most important thing -- and where this hurts most people, is if you're about to try to borrow money, either to buy a car or to buy a house, and if there's an identity theft incident on your credit report, it can easily take your credit score down 50, even 75 points, which we all know that could be the difference between a great loan and a terrible loan. So the most important thing, if you're thinking about borrowing money, you've got to check your credit report and make sure that there's no incident of identity theft.

For the most people, most people end up not losing any money when an identity theft occurs. Credit card companies are pretty good at giving refunds. Banks are acting better that way. That's not the great risk. The risk is the hassle of losing out on a house or paying a much greater amount for a mortgage than you have to because of a black mark on your credit report.

VELSHI: Hey, on the screen, give me 30 seconds on this. It says password protect your cell phone. Not the kind of thing you think of but cell phones sort of do everything for you. They give you you know, it's probably important to keep that information secure.

SULLIVAN: You know, if you have a Blackberry or some kind of a smart phone, you're crazy if you don't have a password on it. There is so much information about you, your e-mail, your contacts, your calender. Think about what someone who just pick it up off the street could learn about you. Got to have a password on those things.

VELSHI: All right, Bob Sullivan, good to talk to you. Thank you for being with us.

SULLIVAN: Thank you.

VELSHI: Bob Sullivan's the author of "Your Evil Twin."

You know, Gerri's been getting all these e-mails, which are fantastic, because she's been giving them good advice.

WILLIS: They are fantastic, yes.

VELSHI: And we've got good guests on. And I get the e-mails that we really can't help you with. But I really like this one. I don't know -- this is what is says. It says, "I don't know, guys, but I was wondering if sports betting is a good investment. I mean you could literally turn a $5 bet into $100 or more." As you know, today's a big day for a bunch of people with their office pools. Not legal in most states. And I don't know if it's a good investment strategy. What do you think?

WILLIS: You know, not my favorite investment. Isn't it illegal? I mean don't . . .

VELSHI: Yes, most likely.

WILLIS: Can the cops show up at your office? I mean, how does that -- yes, Ali, you don't bet?

VELSHI: No, because I just never get it right. It's not even that I'm scared of the law. If I'm betting on something, you know that you should bet the other way.

WILLIS: All right. OK. And don't forget, for more ideas, strategies and tips to save you money and protect your house, watch "Open House" 9:30 a.m. Eastern right here on CNN.

VELSHI: And for more on how the business news of the week effects your wallet or the news of the week, tune in to "Your Money" Saturdays at 1:00 p.m. Eastern, Sundays at 3:00 right here on CNN.

Across America, the economy is issue number one. We'll be back same time, same place, tomorrow noon Eastern right here on CNN.

DON LEMON, CNN ANCHOR: The first day of spring brings flooding of historic proportions as the mess in the Midwest deepens.