Transcript from CNN"s YOUR MONEY
Aired February 28, 2010
ALI VELSHI, CNN NEWS ANCHOR: Welcome to YOUR MONEY. I'm Ali Velshi.
CHRISTINE ROMANS, CNN NEWS ANCHOR: And I'm Christine Romans. The U.S. Economy grew at 5.9 percent in the last three months of 2009, another sign that the worst of the recession may be over. But in the new normal that is our economy, nothing is ever as it seems.
Consumer confidence tumbled, nearly one out of every four mortgages is underwater. That means you owe more than the home is actually worth and the banks are still in big trouble -- the number of troubled banks on the rise. One area where a comeback seems to be in full effect, Wall Street -- bonuses up 17 percent in 2009. It may be a recovery, Ali, but as you can see, it's a very fragile one, at best.
VELSHI: That's right, Christine. That brings us to the heart of the matter, which still remains jobs. Obviously, if we had better employment positions, people would feel better about the economy. Take a look at this map. It provides a shocking visual of how unemployment has spread like a virus throughout the country. This was provided to us by LaToya Guaqua (ph) at Guaqua, she put this together as a graduate student.
And what you're seeing there is as the map gets darker, that means unemployment in those places is worse than it was the previous month. And you've seen this develop over the course of the last couple of years. Unemployment now standing in those particular darkened areas at 10 percent or higher.
ROMANS: And that is the political reality that's facing so many in Washington and so many of us at home, trying to make sense of the statistical recovery, as Larry Summers, one of the presidents of money man put it, but the human recession that we're still going through.
David Gergen is a CNN political analyst. April Ryan is the White House correspondent with the American Urban Radio Network. And Douglas Holtz-Eakin is president of DHE Consulting and a former economic adviser to John McCain.
Now, Doug, when you look at a map like that and you see that stain of unemployment spreading across the country, it means that economists, politicians, and Main Street are all very, very nervous about the condition of America, doesn't it?
DOUGLAS HOLTZ-EAKIN, DHE CONSULTING, LLC: Yes. And they should be. This recession is so severe, precisely because that map is dark everywhere. In a lot of recessions, there are states that escape the brunt or even grow completely. That's not the case in this recession. There's pain everywhere in the U.S.
VELSHI: Let's take a quick look at this unemployment bill that was passed by the Senate. David Gergen, they passed a $15 billion plan. The jobs part of it is it's going to give a tax break to companies that hire people who have been unemployed for a while. They're actually going to not have them pay the social security portion. So, it's a small amount, about $3,500 in the first year for businesses. There are other things in that bill, as well. It doesn't include the jobless benefits extension.
David Gergen, this has to be reconciled with a House bill that is much bigger. I don't even know how that process is going to end up, but is this right direction for the government in terms of creating jobs?
DAVID GERGEN, CNN SR POLITICAL ANALYST: I think it is. And the good news is that the Senate bill got 70 votes. It got a number of Republicans to come over, Scott Brown being the first one out of the gate to come support it. So it was bipartisan in nature.
The bad news is that it is so small. The Senate was contemplating a much bigger bill. The house passed a bill of $174 billion. The administration asked for $150 billion and they came up with 15. The "New York Times" has editorialized this as "pathetic," they called it "puny." And it really will not create many more jobs. I think the real question now, Ali -- I think this will be passed by the house, by the way, they've got some irons to wrinkle out. But the question is, where do we go from here?
The country clearly does not want another stimulus bill. What they want is something much more targeted. And the issue becomes and Doug and other economists can respond to this, but are there pieces you can carve out, such as infrastructure, that would make sense to continue and make sure you don't get into a lot of the pork that we saw in the stimulus. And that's going to be the hard question.
I think it is -- there's no question that the Senate will act, the House will act on extending the unemployment benefits. There's no question they'll act on extending COBRA, which is important for people's insurance purposes, but I think the hard question is, where do they go from here after this $15 billion start, which is a tiny start.
ROMANS: Right, April, he calls it a tiny start and many of the economists we've talked to says it will have modest jobs growth at best. That's one of the reasons why some of the Republicans felt like, you know, look, we don't have this money in the first place and it might not create that many jobs. How do we make a dent in the unemployment situation? And is the Senate bill have a targeted stimulus from here on out, or is it the right plan?
APRIL RYAN, AMERICAN URBAN RADIO NETWORK: Well, from what I'm hearing, the way you make a dent is not this bill. Their saying, the people I've talked to, including members of the House, saying, Democrats particularly, they're saying they don't like it. They're saying one way to make a dent is to extend unemployment. To take that money, you know, extra, beyond the 13 weeks, to take that money and push it into the economy so people will spend and you can see a little bit from that.
But then also that you're hearing that this doesn't have enough dealing with jobs. And I think what's happening is we've seen the problem with the stimulus package, as we talked about a moment ago, the fact that the stimulus package has problems. The stimulus package, you have not seen all of the moneys go to the shovel-ready projects as of yet. So, they're trying to learn the lessons from the past of the stimulus package, but they're also having some problems with this, because they're not focusing more so on job creation. So the dent is, from what we're hearing, put more jobs in there, more shovel-ready projects and also extend unemployment.
ROMANS: Doug, is this the right thing to do? I mean, are targeted stimulus plans or just taking little pieces of the jobs, safety net situation, and addressing that, is that the right way to handle this? And also, Ali and I talked a lot about this, this week, the government can't really create jobs unless they're government jobs. They can create the atmosphere under which private industry can create jobs. Is this really going to help small businesses doing some hiring?
HOLTZ-EAKIN: Well, I think you said it exactly right. In the end, the government doesn't create jobs. It can speed the recovery of the private sector jobs and even there, its tools are limited. So, one of the things that I think makes sense is to extend unemployment benefits, those automatic stabilizers, the things that put more money out when things are bad, but get smaller automatically when the economy recovers, those are a good idea.
I had some hope for the jobs tax idea here, because, first of all, it was bipartisan in its origin, Senator Hatch and Senator Schumer. I thought that was a good step for Washington. No. 2, it targeted the problem. The problem is the labor market. The payroll tax is the biggest tax most Americans pay. Unfortunately, it's not very big. And it will have only modest effects. But I think if you paired something like this, maybe in a more aggressive form, with the plan to get rid of the deficits in the years to come, the markets would responsible favorably to that.
What's been missing in all of this has been an exit strategy where the private sector can say, you know, I can see the way out for the government. They're going to withdraw their efforts. There'll be room for me to grow.
ROMANS: All right, everyone stick with us. Douglas Holtz- Eakin, also David Gergen and April Ryan and our very own Ali Velshi. Don't go anywhere anybody, we have a lot to talk about.
All the big-wigs, of course, gathered for the president's health care summit, but with all that power in one room, did anything actually get done?
(COMMERCIAL BREAK)
ROMANS: President Obama, this week, calling a bipartisan summit on health care to break through the gridlock.
(BEGIN VIDEO CLIP)
BARACK OBAMA (D), UNITED STATES PRESIDENT: Part of the goal here, I think, is to figure out what are the areas that we do agree on, what are the areas where we don't agree, and at the end of that process, then make an honest assessment as to whether we can bridge these differences.
(END VIDEO CLIP)
ROMANS: But after a full day of serious and televised discussion, did Democrats and Republicans find any common ground or was it all political theater -- Ali.
VELSHI: All right. Well, let's take that to our panel. April Ryan, Doug Holtz-Eakin and David Gergen. I want to start with you, Doug, having watched every last detail and fact checked it, the bottom line is, I don't that we're any closer to an agreement on any particular aspect of health care than we were before this summit. What did we get out of the summit? What did you take from it?
HOLTZ-EAKIN: I don't think we got any real progress toward a bipartisan bill out of the U.S. Congress. We did get some good political theater. We actually got a pretty serious discussion of the issues involved in health care reform, but unfortunately, the meeting was a year to late. This is a meeting that had to happen last year, before the legislation was set in stone, at a time when you could actually engage Republicans and get them on board by having Democrats accept some of their ideas. I saw Republicans and the president engaged, but I didn't see Republicans and Democrats on the Hill, their counterparts, engaged. I don't see much future there.
ROMANS: April, you were there covering this for the whole day. And I want you to listen to what Senator Lamar Alexander said and tell me if you think this is the right approach.
(BEGIN VIDEO CLIP)
SEN LAMAR ALEXANDER (R), TENNESSEE: We've god to do something. And that's about -- that's where we are. But we think to do that, we have to start by taking the current bill and putting it on the shelf and starting from a clean sheet of paper.
(END VIDEO CLIP)
ROMANS: A do-over. We've been looking at this for months. The White House would like to get moving on something new and soon. He's calling for a complete do-over.
RYAN: The president and Democrats are saying no do-over, it's not going to that, because if you do it over, they're not going to get anywhere. They're as close as they've ever come before, even with all of this wrangling.
And you know, going back to the earlier question, the Congressman James Clyburn, the House minority whip said, yes, there is theater in this, and they included many Republicans to include Cantor and Mr. Lamar Alexander, because saying what they're doing is nothing but theater. But both sides do contend that, look, we have to do something. And the cost of this is so exorbitant, $1 trillion, but look at the cost, $1 trillion for this versus the fact that you have other insurance companies all across the country talking about possibilities of raising rates.
You have Anthem in California talking about raising rates by 39 percent and over states are talking about doing it, other insurance companies in other states. So, $1 trillion versus the cost of going up, you know, right now insurance in this country, 17 percent of the economy, two to three times of that of inflation, one in every six American dollars for insurance. And imagine if they don't do anything and all these other insurance companies around the country raise rates, what's going to happen then?
VELSHI: Yeah, David, let me ask you about that. You know, you were watching it along with me yesterday, all of the detail. I thought there was something fascinating about the fact that all of these different constituent people were having a conversation with the president. I did enjoy it. But in reality, with this idea of a blank slate, starting again came up a few times. Is that practical, given that what we kept hearing from Republicans and Democrats is that they're not even close on many parts of health care reform.
GERGEN: I thought it was the best conversation the country has had about health care since this whole debate started. I agree that had we heard it a year earlier, it would have been much more productive. What it did reveal is that everybody in that room thinks that the status quo is intolerable, that we have to do something.
The disagreement is over whether this big omnibus bill is the right answer or not or whether it's going to make things worse. And that's a sharp disagreement. What clearly we're now not going to get a bipartisan deal, they are too far apart, Democrats don't want to start over, Republicans don't want to sign on to this bill. So, a bipartisan agreement is now off the table after this meeting.
Where we're going is, the question becomes, can and should the Democrats pass this omnibus bill through this so-called reconciliation process. And they're going to be thrashing around on that over the next four or five weeks. I think that we will now see a lot of dialogue and debate and as I say, thrashing, for a while here and we're not going to know whether the Democrats are going to pass this bill or whether they'll attempt to go to plan "B," the so-called "Skinny Bill." And I think there are a lot of questions that need to be resolved.
What's striking about this, of course, in his State of the Union Address, the president said "jobs, jobs, jobs, that must now be our focus." And only a few weeks later, here we are back into health care again. And I think the country is sort of scratching its head, what about the jobs? And I think it's really imperative that the Congress tonight to work on jobs, even as we have this sort of large- scale debate over health care.
ROMANS: I don't think a lot of Americans think that they're elected officials feel their pain, quite frankly. And you look around that table, and quite a few of those people would not be able to go out and purchase health insurance on their own. And that is the truth, when you think about it. They would be uninsured if they didn't have that nice job that we've put them in. So, I think that's why there's some, I don't know, skepticism and cynicism among the American public.
RYAN: One person said yesterday they had a replaced hip and something else going on and they said, you know, if they didn't have the insurance they have now they would vice president have gotten it. I don't think so. That's true.
ROMANS: Yeah, all right. April Ryan, thank you so much, American Urban Radio Network, the White House correspondent, there. Thank you so much. David Gergen, CNN senior political analyst, and Doug Holtz-Eakin is -- he's going to stick around for us for another go of it, here, right after the break.
You know, for a while it looked like housing was on the rebound. What we learned this week shows that the mortgage meltdown may be far from over.
(COMMERCIAL BREAK)
ROMANS: April 30 is the deadline for home buyers to sign their contract if they want up to $8,000 in tax credits. The Federal Reserve is also planning to stop buying back those mortgage-backed securities next month, which most experts agree, Ali, will lead to higher mortgage rates down the road.
VELSHI: Now, help for the housing market, that means, might be drying up before this housing recovery is complete. Existing home sales were off more than seven percent last month while new home sales fell to a record low in January. And a startling one in four mortgages in this country are underwater, meaning that those homeowners owe more than the home is actually worth. Now, this means that foreclosures will continue to weigh on lenders and borrowers alike. This map shows the hardest-hit areas of the country. Nevada, now, seeing 70 percent of all mortgaged properties underwater.
ROMANS: That's just unreal, those statistics. The mortgage meltdown started this mess. Are we right back where we began?
Don Peebles is a real estate developer and CEO of the Peebles Corporation. Douglas Holtz-Eakin remains with us, as well. Let me first bring you into this discussion, Don, a lot of people have telling me the peak of foreclosure activity, the trough of the housing mess was in the fourth quarter of last year and now people are scratching their heads and saying, wait a minute, maybe we haven't seen the worst yet. Where do you weigh in on this?
DON PEEBLES, PEEBLES CORP: Well, I think we haven't seen the worse yet. We've almost seen the worst, but what's happening now in states like Florida, a judicial foreclosure state, these foreclosures have had to work themselves through the court system. And now they're going to free up, for example, in south Florida alone, there are about 50,000 foreclosure cases pending in the courts right now, and as they work their way through the court system, they will then begin to put a new amount of inventory on the marketplace. Those are going to be at steep discounts as well and pull them down. So, I think we're going to see more of that and that's contributing to this lower volume.
And then, also, the inexpensive properties, the quality inexpensive properties have been absorbed. Now you're going to also see the impacts of markets like charlotte and other markets where they didn't have as much velocity in the boom and bust time, so now they're getting hit by the economic impact of job loss and sectors in the financial markets being hit by like Bank of America and Charlotte. And I think you're going to see that pull down price a bit as well and slow things down. And then, of course, there's jobs, jobs, and jobs.
VELSHI: Yeah, that's exactly right.
Doug, let's look at this for a second from the perspective of our viewer who might be a potential buyer or seller of homes. The reality is, we may see what Don is saying. We may see further lowering of the median price of a home over the course of the next year, but we are likely to see slightly higher interest rates. So, if you are a buyer or a seller, how do you read these tea leaves and decide what you're supposed to do over the course of the next year?
HOLTZ-AEKIN: Well, it's pretty hard to. I'd say for buyers, they should recognize that we're seeing a normalization of policy toward the housing market. The government shouldn't be in the business of bribing people to get new homes and it's getting out. The Federal Reserve shouldn't be in the business of...
VELSHI: I'm just going to stop for you a second. When you say normalization of policy, you mean, we're going to stop keeping interest rates really, really low. Which mean it's going to become more expensive to buy a house.
HOLTZ-AEKIN: Absolutely. And the tax credit is going to go away. So, if you're on the buyer's side, you're going to see all that special help go away. Now is the time to move. If you're on the selling side, we'll there's a lot of inventory out there, we are going to see a downward pressure on prices, still. So, it's a mixed picture for the U.S. housing market.
And Ali, it's very closely tied to the jobs issue in two ways. No. 1, we're getting increasing evidence that many of the small businesses who aren't hiring at this point, aren't hiring because they borrow against the owner's home in order to finance themselves and they can't do it in this environment.
And the thing we've learned is that if you've got a house that's under water, you can't really pick up and go find a new job. And traditionally that mobility, the chance to go to a new place has been part of the recovery. Both of those things are being handicapped by the housing market.
ROMANS: And that mobility thing really concerns me. Concerns a lot of people that I talk to, because that's been something that's been a very defining characteristic of this American economy, that people get up and they move and they try something new. And when they have a good opportunity, they take it.
You know, I want to ask both of you, but quickly first, Doug, you know, how do you know if you're that first-time home buyer and you want to sign a deal by April 30, how do you know that -- for example, in Miami, there's a forecast from Moody's that prices could go down by another 29 percent by next year. How do you know if you buy today, you're not sitting on something that's worth 20 percent less next year?
HOLTZ-AEKIN: Well, I think the lesson is, don't be in the business of buying a house with a one-year horizon. This is a long- term investment. Make sure you're in it for something that's going to last five, 10 years.
ROMANS: What do you think, Don?
PEEBLES: Yeah, no, I think, first of all, people should buy homes because they need them. They are a utilitarian purpose, they provide shelter, buy them for that purpose. If you're committed to that location at least a five-year horizon, then you should buy. Otherwise, I think you should rent. I do not believe, by the way, that south Florida prices or prices in Miami will drop close to 30 percent. I think we may see another price drop of around 10 to 15 percent in some sectors, in the most affordable sectors, but the high end for example, the super high end, is holding its own, right now and...
VELSHI: Well, we've got two of you on here with great perspectives. One is an economist and Don, you are a very, very successful developer. And successful developers don't buy at the top of the market. So, are there opportunities, given that we know interest rates are likely to go up, even if house prices are going 10 percent or -- down 10 percent or 15 percent in some markets, is there opportunity here, if you are going to live in that house?
PEEBLES: Absolutely. Give you an example. I just bought a vacation property. My daughter rides horses and she rides in the Palm Beach area. So I bought a condo in Palm Beach that sold in 2005, brand-new, five-star building, it sold for $2 million. The loan on the property was $1.5 million. I bought it for $600,000. The bank wrote the loan down to $500,000. So just imagine, that's a tremendous opportunity. So, what if prices drop another, you know, 10 percent, so it drops $50,000, but the reality is it will bounce back and I get to use it at the same hand. So, there are opportunities for the average person to buy. There are opportunities who those who want to buy on the vacation side and then going into the commercial sector, there are going to be tremendous opportunities.
ROMANS: If you have a job. And that's the whole thing that we keep talking about. So everyone...
HOLTZ-AEKIN: Right, that's the key.
ROMANS: We have to wrap it up, but just nod your head or shake your head for me, everyone, including you, Ali, if you think mortgage rates are going up and -- are mortgage rates going up, everyone?
VELSHI: Yes.
HOLTZ-AEKIN: Yes.
PEEBLES: Yes.
ROMANS: And we could see home prices go down a little farther from here? Yes?
VELSHI: Yes.
HOLTZ-AEKIN: Yes.
PEEBLES: Yes
ROMANS: OK, buyers and sellers, you've been warned by two experts and Ali.
(LAUGHTER)
ROMANS: Thanks, Doug Holtz-Eakin, thank you so much. And also Don Peebles. Gentleman, fantastic discussion.
Almost a year from Bernie Madoff's sentencing, I'll sit down with one victim to hear how she's picking up the pieces.
(COMMERCIAL BREAK)
ROMANS: It's been almost a year since the sentencing of Bernie Madoff. Bernie Madoff, of course, the man who stole billions of dollars from thousands of people. He pleaded guilty to 11 charges, including money laundering, perjury, and false filings with the SEC, More recently, this week, the swindler's daughter-in-law filed to change her last name in order to rid herself of the ordeal and her children too.
But for some, reinventing yourself is not as easy as a name change, especially when you've lost it all. You may remember my next guest. We first spoke to Alexandra Penney just weeks after the news of the Madoff scandal came out. She lost almost all of her savings to Madoff. Now she's sharing her story in her new book "The Bag Lady Papers: The Priceless Experience of Losing it All."
Alexandra, what's so priceless about making all that money from working so hard and then losing it all?
ALEXANDRA PENNEY, THE BAG LADY PAPERS: Well, you learn a lot. The thing that that happened to me was I surprised myself and I thought I was going to fall apart. My worst fear had come true, I lost all the savings I ever made since I was 16 years old. I was terrified about being a bad lady. Not -- an emotional fear, not a real fear. I call myself, by the way, now, a PORC, a person of reduced circumstances, like many Americans.
But why it was priceless was one you learn you can go through your worst trauma and you will be OK. And you learn a lot about yourself, you learn a lot about your friends. I had adventures that I could not believe. I got to go to Africa to do photography and be paid for it, never would have happened before. So many things, both in terms of adventure, but also psychologically, made me a lot stronger.
ROMANS: There's a parallel here, for millions of people who have lost their home, lost their job, lost their house, who may not have been able to become a best-selling author during their heyday or become so financially secure as you were, but who also lost it all. What's a parallel for people who are watching today saying, you know it's very difficult to say that this experience that I'm going through is priceless?
PENNEY: Well, what I think you need to know when you go through something like this is there are several things you can do to help yourself. I'm a wild worrier, and that's probably why I had these fears. But what you start to do is I started doing three-letter acronyms. Which is, stop negative thinking. Do not think, which I was doing, like, what am I going to do about the next catastrophe. Otherwise you melt away into a panic.