Return to Transcripts main page

American Morning

Global Markets Plunge; Economy Center of the Presidential Debate

Aired October 08, 2008 - 05:30   ET

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

ANNOUNCER: This is CNN Breaking News.
JOHN ROBERTS, CNN HOST: Good morning, thanks very much for being with us. It's a Wednesday. It's the 8th of October. We're on the air a half an hour early this morning because we've got big news on two fronts. We've got of course what happened last night in the debate between Senator Obama and Senator McCain and also we have some serious news on the economy here, particularly on the worldwide markets.

KIRAN CHETRY, CNN HOST: That's right and that's why we're coming to you now. We begin with the breaking news of the massive losses on the Asian financial market. In Japan the Nikkei lost more than nine percent. That's Tokyo's market's biggest one-day drop in 21 years. It sent the Nikkei to a five year low.

Then to Hong Kong where the Hang Seng Index closed down eight percent. Trading was suspended in Indonesia after the Jakarta market fell 10 percent and European markets also sharply lower. London's FTSE down five percent. Meanwhile, Britain's finance minister announcing a nearly $90 billion financial rescue package for the banks in the U.K. Sound familiar?

Well, the latest jolt of dire financial news triggered by Wall Street's latest stock plunge. This was a look at the boards yesterday. The Dow closing 508 points down Tuesday to close at a five year low and signs are pointing to an even lower market this morning. CNN's Christine Romans is "Minding Your Business" this morning. He is here help us wrap our heads around this. Was there any event, any catalyst that seemed to happen between yesterday and this morning for the overnight - Asian markets to be like this?

CHRISTINE ROMANS, CNN CORRESPONDENT: This is fear, fear, fear hop- scotching around the globe. Fear about something, the most basic thing to our economy and that is the banks. And you can see it. It started here yesterday, we had been coming off of ugly days in Asia. Yesterday the market couldn't get off the ground. It could not get off the mat at all even after very, very good news about what the Fed was trying to do in terms of directly loaning to banks and then overnight it's just feeding on itself.

One of the great comments I heard this morning, there was irrational exuberance about 10 years ago. This is irrational despondency. We know that markets trade on fear and greed. We had greed for 10 years. Now we've got fear about what it's going to look like.

Let's run through these numbers again because these are pretty stunning. Jakarta down 10 percent, Tokyo down 9.4 percent, Hong Kong down 8.2 percent. Shanghai, down three percent. European markets. Those stocks are also falling. Frankfurt down five percent. Paris down four percent. London down four percent. It is off its worst levels. Huge banking bailout. That providing a little bit of help from the worst levels of the day but again, this is not so much about news as about people are asking where should I put my money? Not what investment, but what bank should I put my money in.

And there is nothing more basic than what bank your money is in.

Let's do a quick market check from yesterday because the Dow had a very ugly day yesterday. The S&P, NASDAQ, very, very ugly. The Dow down five percent yesterday. The NASDAQ down 5.8 percent. The S&P 500 down 5.7 percent. But that one day as bad as it looks is not as bad as the five day performance. The five-day performance for the Dow is the largest five-day points decline in history for the Dow Jones Industrial Average. Point decline, not percentage, point decline.

But it has been an ugly, ugly five days.

ROBERTS: Nothing to suggest it's going to get better today, either.

ROMANS: Dow Futures are down 202 points right now so we're watching very closely.

ROBERTS: We'll be hanging on tight. Stay with us.

ROMANS: Sure.

ROBERTS: Because we want to talk more about all of this with you.

Right now trading underway this morning in Europe. The markets are in negative territory as Christine was saying despite an unprecedented move to stop the bloodshed in the U.K.

Earlier this morning the government there unveiled a nearly $90 billion plan to bail out its banks. CNN's Richard Quest is live in London and Richard, Prime Minister Gordon Brown went before the British people today to say that he is going to do whatever it takes to protect people's investments at least in the banks.

RICHARD QUEST, CNN CORRESPONDENT: Indeed, John. Good morning to you from London. This is how the British papers described what was happening, "A Day of Reckoning." Indeed, for the British banks that's exactly what it was. The best part of $100 billion has been provided by the British government but there is a big difference between the way the U.K. government's doing it and the U.S. government.

In the U.S. the bailout plan is to buy up all those toxic assets, put them in a big dump and see what happens. In Britain the government is actually going to start investing in the banks themselves. The banks have all signed up for this rather generous proposal which basically means, yup, Britain's banks are part nationalized, John.

ROBERTS: Richard, a bigger part of the problem is we see this contagion spreading around the world. We saw what happened in the Asian markets today, but even there in Europe, even though you have the European Union, all of these countries are still acting independently. Is there any way that they can act together and if they did act together, would that help to solve the problem.

QUEST: No, it wouldn't because there's no infrastructure. In terms of money markets and putting money in and taking money out, absolutely. The European Central Bank can do that. But banks are regulated nationally. It's as if each state in the United States regulated its own banks and there was no overarching principle.

I was interested to hear what Christine Romans was saying a moment ago, John. The one thing that's different this week over last week because of the fear is what happened in Iceland. You'll remember John, in Iceland a major bank went bust and depositors couldn't get their money.

We've always said this from day one. The moment somebody puts their card in a machine and the machine says, "not today, thank you," that's when the crisis really gets serious. And that's what's happened this week and now we're seeing the ripple effects.

You can't have a global market, John, and not have these sort of effects around the world.

ROBERTS: All right. Richard Quest for us in London this morning with the latest on that. Richard, thanks so much.

CHETRY: And the global market jitters sending stocks in Japan into a freefall as well. The benchmark Nikkei Index losing more than nine percent. CNN's Kyung Lah is live in Tokyo with reaction to the sell- off which is the market's biggest one day drop in more than two decades. Good morning, Kyung.

KYUNG LAH, CNN CORRESPONDENT: Yeah, Kiran, we haven't seen the likes of this since 1987. The reaction here in Japan to Black Monday. So this is a very bleak day. It brings back a lot of bad memories. There is an electronic board in Downtown Tokyo. At the end of the trading day as investors and business people and people who really don't pay attention to the stock market were heading home, they were stopping dead in their tracks, staring at that number, 9.38 percent drop. One of the lowest that we have seen in two decades and those investors were just simply stunned.

What we saw here in Japan is panic selling according to one analyst. So what is driving this? The banks here in Japan were largely believed to be able to handle any sort of global credit crunch. But what's driving this is the real economy. Japan's real economy. And here's how.

If the U.S. economy is fundamentally sick, and that's a concern here among Japanese investors, that if the person on Main Street, USA is reluctant to go into Best Buy and buy the new Wii or go to the showroom, by the latest Toyota, then what we see here in Japan is a real impact on the bottom line of those companies. That translates into jobs and profit losses. We saw Toyota today lose some 12 percent in its shares just today. It is a brutal day driven by this real concern that the U.S. economy is not going to buy Japanese products and Japan's economy relies on its number one customer, the U.S. customer. Kiran?

CHETRY: All right. Kyung Lah for us in Tokyo where it is 6:36 in the evening there. Thanks so much for being with us.

If you're wondering what all of this means for your money, go to cnn.com/am. You can submit your question and our Gerri Willis is going to be answering them. She is our personal finance editor. A little bit later on this morning.

But we do want to bring in Christine Romans once again just for some more reaction as we heard from Asia to London this morning. A lot of fear.

ROMANS: Over the past few days we've been hearing from brokers who have been saying that their clients have ridden this whole thing and now they're saying, OK, that's it, I want out. You can put me in something - put me in T-bills, put me in a stable value fund, put me in something safe, put me in a money market, but I can't take the stock market.

But listen to this, consider this, Art Kashin (ph) who is a veteran on the New York Stock Exchange. He says the stock market is the side show. The credit markets are what really is so important here. The stock market affects half of Americans, in our retirements - but the credit market affects everybody.

ROBERTS: But in the next few weeks the credit markets should start to loosen up as the effects of this bailout bill start to reach us.

ROMANS: Well, we hope. I mean, that's the hope but we haven't seen much of a thaw. A little bit of a thaw here and there and yesterday the government, the Fed and the Treasury said that they were going to go in and make loans directly to companies almost, I mean through the commercial paper market and you still have the stock market very, very concerned and a lot of fear.

ROBERTS: I'm wondering if a good question to ask this morning is, has the economic situation worldwide already outstripped this bailout bill.

ROMANS: Well, that's a good question. That is a good question and we don't know the answer to it. That's the problem.

CHETRY: Yesterday when we heard from Ben Bernanke, the Fed chairman, he was saying this happened in time, this bailout passed in time to be able to stem some of this. So I know that he has to speak and give some confidence to what's been going on but are we too far ahead of the bailout in terms of expecting it to work?

ROMANS: Well, I mean, I think that's a good question, too. I mean even right after the bailout was passed, you're hearing people say OK, now, gosh, this is going to be good for Main Street and I don't think anybody was selling it as something that was going to be good for Main Street. It was something that they were hoping was going to stem the bleeding overall.

I mean, it was a kind of thing like who are the winners and losers? Well, it's just losers, varying degrees of losers right now in the economy and that's something that's happening worldwide. You have worries of global recession and you also have worries that the financial infrastructure is broken.

ROBERTS: We'll talk more about this this morning. It's topic one this morning, no question about that.

Most politics in the morning, though. We are getting our very first look at how the candidates faired in last night's presidential debate. According to a CNN/Opinion Research Corporation poll, 54 percent of people who watched last night think that Senator Barack Obama did the best job. Thirty percent said John McCain did and 59 percent said Obama is the candidate who would better handle the economy.

The debate followed another devastating day on Wall Street. Last night both candidates zeroed in on their plans to fix the ailing economy.

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA, (D) PRESIDENTIAL CANDIDATE: The middle class need a rescue package and that means tax cuts for the middle class. It means help for homeowners so that they can stay in their homes. It means that we are helping state and local governments set up road projects and bridge projects that keep people in their jobs and then long term we've got to fix our health care system, we've got to fix our energy system that is putting such an enormous burden on families. You need somebody working for you and you've got to have somebody in Washington who is thinking about the middle class and not just those who can afford to hire lobbyists.

And then long term we've got to fix our health care system. We've got to fix our energy system that is putting such an enormous burden on families. You need somebody working for you and you've got to have somebody in Washington who is thinking about the middle class and not just those who can afford to hire lobbyists.

SEN. JOHN MCCAIN, (D) PRESIDENTIAL CANDIDATE: Until we stabilize home values in America, we're never going to start turning around and creating jobs and fixing our economy and we've got to give some trust and confidence back to America. I know how to do that, my friends. And it's my proposal. It's not Senator Obama's proposal, it's not President Bush's proposal. But I know how to get America working again, restore our economy and take care of working Americans.

OBAMA: I am going to spend some money on the key issues that we've got to work on. You may have seen your health care premiums go up. We've got to reform health care to help you and your budget. We are going to have to deal with energy because we can't keep on borrowing from the Chinese and sending money to Saudi Arabia. We are mortgaging our children's future, we've got to have a different energy plan. We've got to have a different energy plan. We've got to invest in college affordability.

So we're going to have to make some investments but we've also got to make spending cuts and what I've proposed - you'll hear Senator McCain say, well, he's proposing a bunch of new spending but actually I am cutting more than I am spending.

MCCAIN: Look, we can attack health care and energy at the same time. We're not rifle shots here. We are Americans. We can with the participation of all Americans work together and solve these problems together. Frankly I'm not going to tell that person without health insurance that I'm sorry, you'll have to wait. I'm going to tell you Americans that we'll get to work right away. And we'll get to work together.

OBAMA: But let's be clear about my tax plan and Senator McCain's because we're not going to be able to deal with entitlements unless we understand the revenues coming in. I want to provide a tax cut for 95 percent of Americans. Ninety five percent. If you make less than a quarter million dollars a year, you will not see a single dime of your taxes go up.

If make $200,000 or less, your taxes will go down.

MCCAIN: Let's look at our record. I have fought higher taxes. I have fought excessive spending. I have fought to reform government. Let's look at our records, my friends, and then listen to my vision for the future of America.

We'll get our economy going again and our best days are ahead of us.

(END VIDEO CLIP)

CHETRY: Well, there you go. And in-depth coverage of the debate still to come. We have the best political team on television. Up early with us this morning. And also the stock markets plunging around the world and many Americans are seeing their savings and retirement accounts vanish.

We have some advice on what you should know to keep your money protected. You're watching the most news in the morning.

(COMMERCIAL BREAK)

ROBERTS: It's 5:45 in the East Coast and welcome back to the most news in the morning. We are on early today following breaking news for you. A worldwide financial scare. You're looking at live pictures of the London Stock Exchange. The FTSE this morning where stocks are trading in strong negative territory.

Things even worse in Asia today. The Nikkei was off more than nine percent. That's the Tokyo market's biggest one day drop in 21 years. It sent the Nikkei to a five year low. And live pictures from New York where Wall Street opens in negative territory today, closing down more than 500 points yesterday. Futures are pointing to another down day. We should mention in the next few minutes we're going to be talking with noted Columbia economist Jeffrey Sachs about the state of the economy and whether or not we're about to head into a global recession.

CHETRY: And Christine Romans is at our business update desk here with us this morning getting up early with us as well to try to put this into some sort of perspective.

Why this 500 point plunge here yesterday?

ROMANS: Well, people are nervous. People are credibly nervous about their money. And this is a time to take a look at how to protect your money. And this is - it has been a time for months to talk about protecting your money but we know that the banks that are FDIC- insured, your money is now protected up to $250,000 per account in those banks.

We know that credit unions have private insurance so that money is also safe. We know that the government has done everything it can to guarantee, to guarantee business loans, to pump money into the system, to keep the banks lending money, we know that you have control over two things, your job and your own money, your own savings and I've heard over and over again from economists and analysts that the only thing that you can do right now is to go to work, do a good job, try not to be too nervous and panic and take care of your money.

ROBERTS: With the credit squeeze, though, how much control do you really over your job?

ROMANS: That's right. That's right. One thing to remember is probably every manager in America has the top five and the bottom five percent of their workforce identified and you want to make sure you're on the right part of that equation. And that's the honest to God truth.

ROBERTS: (inaudible) laid off 10 percent of its staff.

ROMANS: That's right. You've got to make sure your boss knows what you've done lately and that the people who work for you respect you and the people you work for respect you and that's what I hear over and over again, it's the one thing you really have control over.

CHETRY: And the second question about the stock market. Is it too late to get out?

ROMANS: Well, it's a paper loss until you sell and you go into a safe - a money market or something and then it's a real loss and you have to figure out when do you need that money, do you need that money now? I mean if you need the money right now you shouldn't have been in the stock market in the first place.

ROBERTS: Some people are saying enough ...

ROMANS: Some people just can't take it. And they're going to take that loss rather than go through the roller coaster. ROBERTS: Christine, thanks for that.

Hey, the gloves came off as Barack Obama and John McCain clashed over the crumbling financial system. Hear their attacks and proposals to guide America through these tough financial waters.

You're watching the most news in the morning.

(COMMERCIAL BREAK)

ANNOUNCER: This is CNN breaking news.

ROBERTS: And we're following breaking news this morning.

Markets around the world feeling Wall Street's pain. Asian markets plunged overnight. Japan's Nikkei Index dropping more than nine percent, the single biggest decline in over 20 years. Hong Kong was eight percent lower. European stocks also trading sharply lower this morning. Dow Futures point to a lower opening again this morning after a 508 point drop in the Dow on Tuesday.

CHETRY: And the economy dominating the second presidential debate. John McCain and Barack Obama clashed over tax proposals and their records and they used every opportunity to focus on pocketbook issues like jobs, health care and education.

(BEGIN VIDEO CLIP)

TOM BROKAW, NBC NEWS ANCHOR: Health policies, energy policies and entitlement reform. What are going to be your priorities in what order? Which of those will be your highest priority your first year in office.

MCCAIN: I think you can work on all three at once, Tom. I think it's very important that we reform our entitlement programs. My friends, we are not going to be able to provide the same benefit for present day workers that present day retirees have today.

OBAMA: We're going to have to prioritize, just like a family has to prioritize. Now I've listed the things that I think have to be at the top of the list. Energy we have to deal with today. We can't simply drill our way out of the problem. And we're not going to be able to deal with the climate crisis if our only solution is to use more fossil fuels.

MCCAIN: There was an energy bill on the floor of the Senate loaded down with goodies, billions for the oil companies and it was sponsored by Bush and Cheney. You know who voted for it? You might never know.

That one!

You know who voted against it? Me.

I want to give every American a $5,000 refundable tax credit they can take anywhere, across state lines. Why not? OBAMA: You know what insurance companies will do? They will find a state, maybe Arizona, maybe another state, where there are no requirements for you to get cancer screenings. Where there are no requirements for you to have to get preexisting conditions and they will all set up shop there.

MCCAIN: He'll impose mandates. If you're a small business person and you don't insure your employees, Senator Obama will fine you, will fine you, that's remarkable.

OBAMA: All I'm going to do is help you to lower the premiums on it. You'll still have choice of doctor, there is no mandate involved. Small businesses are not going to have a mandate.

MCCAIN: My judgment I think is something I think, a record I'm willing to stand on. Senator Obama was wrong about Iraq and the surge. He was wrong about Russia when they committed aggression against Georgia. And in his short career he does not understand our national security challenges. We don't have time for on the job training, my friend.

OBAMA: Senator McCain in the last debate and today again suggested that I don't understand. It's true. There are some things I don't understand.

I don't understand how we ended up invading a country that had nothing to do with 9/11 while Osama bin Laden and al Qaeda are setting up base camps and safe havens to train terrorists to attack us.

That was Senator McCain's judgment.

(END VIDEO CLIP)

CHETRY: So a little bit there of the candidates in their own words at last night's debate. In a new CNN/Opinion Research Corporation poll 64 percent of debate watchers had a favorable opinion of Barack Obama after watching the debate. Fifty-one percent had a favorable opinion of John McCain after the debate.

ROBERTS: Massive sell-off in overseas markets. Are we on the verge of a global recession? Renowned economist Jeffrey Sachs weighs in on the global financial meltdown.

(COMMERCIAL BREAK)

ROBERTS: We're following the breaking news, the worldwide financial crisis turns into a financial panic overnight with Asian markets in a free fall. European stocks sharply lower today. It comes after the Dow's 508 point plunge on Tuesday. What's in store for today and where is all this headed in the larger picture?

Columbia University economist Jeffrey Sachs is here to help us make sense of it all. What is happening here? Is this based on fears of a global recession that we see these markets in Asia going down as much as 10 percent? JEFFREY SACHS, COLUMBIA UNIVERSITY ECONOMIST: Well, I think the realization is that the U.S. is already in a recession and a deepening one. The fears are first that the exports from those countries will now plummet because they sell to the U.S. Second, everybody is afraid, of course, of their banks. So there is a ricochet effect around the financial markets. It's pretty bad. There still doesn't have to be a collapse but the absence of leadership, also, the accident that we're in between presidencies right now is definitely adding to the sense that things are just without direction.

ROBERTS: But what's your sense of it, Jeff? Are we heading into a global recession?

SACHS: We're heading into a pretty steep U.S. recession. Asia, which sits on huge, trillions of dollars of reserve, doesn't have to slide into a recession but they are sliding right now because they're also not responding yet in a way which shows any effective recognition that they don't have to be sitting ducks in this.

So the answer is a global slowdown centered in the U.S. but still the policies that could hold things up have not been deployed but could be deployed.

ROBERTS: And as far as the markets go, people every day are wondering where's the bottom here? People are saying that the real problem here is the credit crisis, getting the flow of money going again. But people are looking every day at their 401(k)s diminishing in value, it had that 800 point drop and then it bounced back to 360 something. We had a 500 point drop yesterday, Dow Futures are down 250 days and looking like their going to go worse.

Where does it all end?

SACHS: Well, the Fed made a bad mistake a couple of weeks ago when it let Lehman Brothers go under. They defaulted on money markets. That led to this financial meltdown that's underway right now.

If they can get credit going again, if calm can be restored, not impossible, then a floor will settle.

If on the other hand there still is this cascade of sheer fear, obviously things will go lower. No one is a fortune teller in this. The fundamentals of the economy do not say we need a depression. But the panic is driving us deeper and deeper right now.

ROBERTS: You've just got about 20 seconds left. We're going to hit the top of the hour here. But has the contagion in the global markets already outstripped, gone past where we are with this bailout bill? Is the bailout bill basically obsolete already?

SACHS: It is because it wasn't well-targeted to begin with so it's going to have to be reconsidered in any event. It's going to be a tough start of the next presidency, that's for sure.

ROBERTS: Jeff, we'll get you back in our next hour. Thanks for coming in early this morning. We appreciate your expertise. The next hour of AMERICAN MORNING starts right now.