(CNN Student News) -- March 24, 2009
Bank Plan Announced - Find out what toxic assets are and what the government plans to do about them.
American Icons - Study up on how iconic American companies have fared in turbulent economic times.
Cricket Concern - Figure out why India's new cricket league won't be playing in India this year.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CARL AZUZ, CNN STUDENT NEWS ANCHOR: How might a recession impact an icon? We'll tell you. I'm Carl Azuz and this is CNN Student News.
AZUZ: First up, the Treasury Department announces a plan aimed at helping the country's struggling banks. It is called the "Public-Private Investment Program," and here's how it's designed to work: The government partners with private investors and puts up taxpayer money for the investors to buy up so-called "toxic assets" from banks. What is a toxic asset? Well, things like bad mortgages and loans.
The Obama administration says the goal is to buy up $500 billion of bad assets. Some lawmakers, Republicans and Democrats, have come out against this plan; they're worried that it might put a burden on taxpayers. But the Treasury Department is hoping it'll help kickstart the economy. CNN's Josh Levs joins me to talk about how that might happen.
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AZUZ: First off, an asset: generally seen as something you own, something useful. In a nutshell, what's a toxic asset?
JOSH LEVS, CNN REPORTER: If it's toxic, it means that if you own it, it can pretty much shut you down, right? And when we're talking about a bank having a toxic asset, if it's on the books, it's really hard to do business, it's hard to operate at all.
AZUZ: So, it doesn't start out as a bad asset.
LEVS: Right, it doesn't, and that's why they have these in the first place. In fact, you know how it starts? With people's mortgages. This will show you how this begins. Now, you know, if you go get a mortgage, then you're going to a bank and getting a mortgage. Well, in the next picture we're going to show you what happens with that mortgage. This one big bank will come along and it will take some mortgages from all those little banks. It buys them up, so that bank ends up taking a whole bunch of mortgages, right? And then in the next one, we're going to see this banker, and what they do with all these mortgages. They bundle them all together, a whole bunch of mortgages together; that's called a security. And then, in this next one, what we're going to see is that they let people invest in this thing.
So, they've taken all these mortgages, they've smushed them all together into this security, and then these investors come along and they say, "I want a piece of that." And that makes sense because, if you think about it, people are paying their mortgages, they're paying interest, people want to invest in that, get some of that money. But then what happens when the market falls apart? People can't pay their mortgages anymore, people are broke, they're really struggling, all of a sudden that is worthless. And there you can see the frowning banker, who can't get anybody to come invest in that security. It's a toxic asset because right now, no one wants that. So, you've got these banks that have this stuff that they can't get anybody to invest in, that they can't sell, that are sitting on their books. Very damaging for them.
AZUZ: OK, so the government steps in, it decides it wants to buy some of these toxic assets. How does that help the economy?
LEVS: If the government comes along and buys it up, so it's not on the bank's books anymore, all of a sudden those bank's books are looking better, people can start doing business with them, banks can do business with each other because you've gotten rid of this stuff that's making their books look really bad.
AZUZ: Josh Levs, thanks very much for joining us on CNN Student News.
LEVS: Thank you, I like it here.
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AZUZ: Well, some analysts think that investors' reaction to that banking plan is the reason why the Dow Jones Industrial Average made a big jump yesterday. Experts use the Dow as a sign of how the whole stock market is doing. Yesterday, it gained about 500 points, and that is the biggest one-day increase since last November.
Well, experts predict the eruption of Alaska's Mount Redoubt could last for months! The volcano has experienced five "explosive events" since Sunday, shooting ash about 60,000 feet into the air. This comes nearly 20 years after its last eruption. Officials are monitoring the situation. They're concerned about the impact on nearby air travel and people who live near the volcano.
And flood waters are threatening thousands of homes in North Dakota. The National Guard and the Federal Emergency Management Agency have been called in to help as residents race to fill sandbags to hold off the rising water. The amount of rainfall in the next few days could determine just how bad this situation will get.
Word to the Wise
ERIK NIVISON, CNN STUDENT NEWS: A Word to the Wise...
iconic (adjective) relating to an important or lasting symbol
AZUZ: Some iconic American companies are being hit hard by the recession. You probably remember GM asking the federal government for financial help recently. These companies have been part of our lives for years. Some people find it hard to imagine them ever disappearing, but this isn't a new thing, and some experts argue it's not necessarily a bad thing, either. Maggie Lake explores the issue.
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MAGGIE LAKE, CNN REPORTER: Their stories are entwined with America's story: They prospered in the boom times and, like America itself, are being hit hard in the bad. Weeks ago, shares of 100-year-old icon General Motors dropped below $1.50, a level not seen since the Great Depression. General Electric, an original member of the Dow Industrials, saw shares fall to a 16-year low under $8. And one share of Citigroup, once the most powerful financial firm in the world, dipped briefly below a buck, less than the cost of a withdrawal fee.
WILLIAM COHAN, AUTHOR, "HOUSE OF CARDS": It's historic, it's extraordinary, I mean, and yet they're so big and so iconic, that it makes it all the more dramatic.
LAKE: Dramatic and extraordinary, yes. But New York University Professor Richard Sylla says America has seen these wrenching times before, many times before.
RICHARD SYLLA, PROFESSOR, NEW YORK UNIVERSITY/STERN SCHOOL OF BUSINESS: This is nothing really new, it's just happening to us now and we're not used to it.
LAKE: U.S. history is filled with the names of iconic firms that not only struggled in hard times, but never recovered from them. Two of America's largest companies at the turn of the century were the Pennsylvania Railroad and the New York Central Railroad. They went belly up in the 1970s. And more than 5,000 banks failed in the Great Depression.
SYLLA: Capitalism is often described as creative destruction. When you have a crisis like this, it sort of weeds out the weaker companies.
LAKE: To be sure, many current American icons are holding up well in today's crisis. Apple shares are up more than 10% this year; IBM has rallied; and sales remain strong at the golden arches. Not only are most icons expected to survive this recession, tough times have proven to be perfect times for future icons getting their start.
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NIVISON: Time for the Shoutout! In what sport would you hear the terms bowler, batsman and wicket? If you think you know it, shout it out! Is it: A) Croquet, B) Badminton, C) Cricket or D) Jai alai? You've got three seconds -- GO! If a bowler's pitching a ball past a batsman towards a wicket, you're watching cricket! That's your answer and that's your Shoutout!
AZUZ: Cricket is huge, it's massively popular in parts of Asia, especially India. But when the Indian Premier League takes to the field in April, fans are going to have to watch it on TV, and that is because the games aren't being played in India! It's kind of like the NFL playing every game outside the U.S. Sara Sidner reports on this change of venue.
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SARA SIDNER, CNN CORRESPONDENT: It may sound strange, but India's new cricket league will not be playing its games in India this year. The league, backed by glitzy Bollywood stars and Indian business tycoons, will be moved because of a tussle over security. The announcement came from the man who dreamed up the Indian Premier League and let it loose on India's cricket-adoring public just last year.
LALIT MODI, INDIAN PREMIER LEAGUE: Each team will have a home in another country, in another state, in another stadium.
SIDNER: This year, the IPL season coincides with India's massive general election, and the government says it cannot secure both at the same time.
PREITY ZINTA, BOLLYWOOD ACTRESS: Elections are the number one concern in the country, and, you know, we have to take that into consideration.
SIDNER: So, the Indian Premier League was told to change its schedule. It did twice, but struck out both times with the government. Here on a local cricket field in Delhi, some suspect this isn't just about security, but also a little bit of politics as well.
SAURABH ARORA, COLLEGE STUDENT: They just don't want to take any risk during an election year.
SIDNER: The perception: No one wants to be blamed if something goes wrong. With the Mumbai attacks still very much on people's minds, the government insists the decision is strictly due to serious security concerns. The threat is all too real, as the Sri Lankan cricket team found out when they traveled to Pakistan and faced bullets and militants attacking their bus. Some in India say they don't believe militants would attack their beloved sport here. To them, the move to the U.K. or South Africa or elsewhere is hard to take.
ARORA: Cricket is like a religion in India. Everybody was very much keen, and they were just waiting for this tournament to happen. So, everybody was very disappointed.
SIDNER: Saurabh Arora and hundreds of millions like him have loved cricket since they were children. The cricket league, they had hoped, would bring access to more live matches. Now, they'll have to be content with watching it on TV. Sara Sidner, CNN, New Delhi.
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Before We Go
AZUZ: And before we go today, we are bringing you a unique scene from a store in Texas. Of course, it's only unique if you don't shop at the same places as this horse. Believe it or not, Trixie is actually trained to amble up and down the aisles. You see, Tabitha -- the human, the one doing the shopping -- is a horse trainer who happens to be legally blind. So, she relies on her animal assistant to help get around town.
AZUZ: That is where we ride off into the sunset today. For CNN Student News, I'm Carl Azuz.