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NEWSROOM for March 21, 2001Aired March 21, 2001 - 4:30 a.m. ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ANNOUNCER: Seen in classrooms the world over, this is CNN NEWSROOM.
RUDI BAKHTIAR, CO-HOST: Your Wednesday edition of NEWSROOM is under way. I'm Rudi Bakhtiar. Welcome.
We're all about business today. We start with news from the U.S. Federal Reserve. As interest rates drop, we get reaction from the markets and the masses. Next, we move onto the "Daily Desk" to find out how people should try to keep their finances up when they get downsized. Then "Worldview" travels to the Big Apple to taste Harlem's economic renaissance. And we end up in the classroom "Chronicling" the principles of economics.
The Federal Reserve cuts interest rates by half-a-percentage point, hoping to stimulate the sluggish United States economy. The move drops the federal funds rate from 5.5. percent to 5 percent. Many U.S. banks are following the Federal Reserve's move and lowering the prime rates they charge customers. That will bring down the cost of mortgages, car loans and credit card payments.
And if all goes according to the Fed's plan, consumers would start buying more goods, thereby stimulating the economy. This is the third time this year the Fed has cut interest rates. Two other half- point cuts for the federal funds rate came in January. The Fed's decision to cut rates was based on a number of factors, including slumping corporate profits, a rising amount of idle factory capacity and the threat of spreading economic weakness around the world.
Last week, both major U.S. markets, the Dow Jones and Nasdaq, took a nosedive after corporate profit warnings and mixed economic reports came out.
The interest rate cut didn't improve the mood on Wall Street. Many traders wanted the central bank to cut rates even steeper to stimulate the economy.
Allan Chernoff has more on their disappointment.
ALLAN CHERNOFF, CNN CORRESPONDENT (voice-over): The major indices fell into negative territory on news of the Fed's action, and kept sinking through the afternoon. Traders said the half-a-point of economic medicine from the Fed had already been anticipated. And the market had been hoping for more.
JON BURNHAM, BURNHAM SECURITIES: There's been so much hype about the Fed lowering the rates by more than 50 basis points, as much as 75 even, even a full point.
CHERNOFF: With stocks in a bear market spiral, there is growing talk among traders that the Federal Reserve chairman may be responding too slowly to economic distress.
ARTHUR CASHIN, UBS PAINEWEBBER: Alan Greenspan has been wearing this cloak of infallibility for several years now, a decade. And they are beginning to wonder could it be possible that the Fed somehow miscalculated. And that in itself is worrisome to the markets.
CHERNOFF: Normally when the Federal Reserve cuts interest rates, the stock market goes up. That's what happened immediately following the Fed's surprise half-point rate cut on January 3.
But the next day the markets began tumbling, and kept falling after the Fed made its second cut on January 31. The Dow is down 9 percent since the first rate cut. The Nasdaq composite down 19 percent during the same period of Fed easing.
JIM WAGGONER, SANDS BROTHERS & COMPANY: In the technology sector, which is driving this economy downward, the people are very much concerned about where the bottom is. Managements have not been able to pinpoint or give any guidance as to where they think the bottom might be reached.
CHERNOFF: History is on the market's side. Since 1921, the Fed has engineered a series of three rate cuts in a row 13 times, excluding the current round.
Every time, except in 1930 before the depression, the Dow rallied, gaining an average of 7 percent after three months, 12 percent after six months, and 21 percent one year later.
The problem this time is that Corporate America has been spitting out a steady stream of negative earnings announcements. And some traders argue the market won't begin rallying until it begins hearing good news on profits.
Allan Chernoff, CNN Financial News, New York.
BAKHTIAR: Well, now that the U.S. Federal Reserve has lowered short-term interest rates, what can consumers expect? Analysts don't agree on the answer.
Here's Susan Lisovicz now to help us sort it all out and see what it means for our wallets and our confidence in the economy.
SUSAN LISOVICZ, CNN CORRESPONDENT (voice-over): When the Federal Reserve makes a change in the federal funds interest rate, there is no mandate to commercial banks that they follow suit on mortgages and credit card interest rates. But that is usually what happens in a classic trickle-down pyramid.
Once the federal funds rate declines, commercial bankers adjust the prime rate, which is charged to their best customers. And that in turn triggers changes in the galaxy of consumer loans, such as mortgages, auto loans, personal loans and credit cards. But because the Federal Reserve was widely expected to ease the funds rate, some economists say the impact on this third round of cuts will be far less noticeable.
DOUG DUNCAN, MORTGAGE BANKERS ASSN.: I don't expect to see any change in mortgage rates, because the market has already bid 50 basis points in.
LISOVICZ: A year ago, the average 30-year fixed rate on a $100,000 mortgage stood at 8.5 percent. With the average rate now hovering at 7 percent, consumers can save more than $100 each month in principal and interest, although the money saved may still not be more than the penalties charged for refinancing. But the Fed's move may have more of an impact on consumer confidence.
JAMES GLASSMAN, J.P. MORGAN CHASE: Confidence is absolutely central to everything we do. The Fed's cutting interest rates is a big part of helping to reassure everybody that they are doing what they can to restore growth. It will help to bolster confidence, both in the stock market and here, eventually.
LISOVICZ (on camera): A large part of consumer confidence stemmed from the wealth effect investors enjoyed during the long bull run. And the market's reaction after the Fed move did little to reassure investors.
Susan Lisovicz, CNN Financial News, New York.
BAKHTIAR: On day's like Tuesday, U.S. President Bush often takes a back seat to the man whose words and gestures are said to make the stock market rise and fall: U.S. Federal Reserve Chairman Alan Greenspan.
Bruce Morton looks at Greenspan and a handful of others who can influence the market.
BRUCE MORTON, CNN CORRESPONDENT (voice-over): Is the stock market, is the economy really affected by what people say? Well, some people, like Federal Reserve Chairman Alan Greenspan, if you can follow him.
ALAN GREENSPAN, CHAIRMAN, FEDERAL RESERVE: How do we know when irrational exuberance has unduly escalated asset values, which then becomes subject to unexpected and prolonged contractions, as they have in Japan over the past decade?
MORTON: Sometimes, you want an interpreter.
And of course, people listen to their president about the economy. Franklin Roosevelt reassuring a nation in the midst of the Great Depression.
(BEGIN VIDEO CLIP)
FRANKLIN ROOSEVELT, PRESIDENT OF THE UNITED STATES: The only thing we have to fear is fear itself.
(END VIDEO CLIP)
MORTON: Usually, presidents try to reassure. Lately, though, President Bush has been, as the "Financial Times" put it, urging citizens to ignore good economic news and focus on bad.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Our economy is beginning to sputter.
MORTON: Then-candidate Bush first proposed his tax cut in December, 1999, when things were booming. Lately, he's been selling it as an anti-recession measure.
BUSH: With the right policies, I'm confident our economy will recover. The right policies, fiscal policies. And that means giving people money back, in plain language.
MORTON: And that has Democrats saying, Hey, he's talking us into a recession.
REP. RICHARD GEPHARDT (D), MINORITY LEADER: This all becomes a self-fulfilling prophecy.
SEN. TOM DASCHLE (D), MINORITY LEADER: They are doing it for the short-term political gain of passing a tax cut we can't afford and don't need.
MORTON: Attack and counterattack.
ARI FLEISCHER, WHITE HOUSE PRESS SECRETARY: To suggest that the president's words have caused any of these actions, when the economic slowdown actually began in a period some time ago, is as wrong as wrong can be.
CHUCK GABRIEL, PRUDENTIAL SECURITIES: Let's face it, both the economy and the financial markets are a confidence game. And to suggest that Bush is undermining confidence by his aggressive salesmanship of the tax cuts, it is an in-your-face move. So it's certainly the first gloves-off move on the part of the Democrats.
MORTON: Whoever's right, words do matter. Consumer spending drives the economy. Scared consumers may choose not to spend. It can be just that simple.
Bruce Morton, CNN, Washington.
LINDA KRAPF, DOYLESTOWN, PENNSYLVANIA: My name is Linda from Doylestown, Pennsylvania. And I want to ask CNN: How is the chairman of the Federal Reserve chosen? And how long is that person's term?
PETER VILES, CNN CORRESPONDENT: The president chooses chairman of the Federal Reserve, and then the Senate confirms those choices. Terms are four years in length. This is Alan Greenspan's fourth four- year term.
He was first nominated by president Reagan...
(BEGIN VIDEO CLIP)
RONALD REAGAN, FORMER PRESIDENT OF THE UNITED STATES: And now the vice president will swear Alan Greenspan in as the 13th chairman of the Federal Reserve Board.
GEORGE BUSH, FORMER VICE PRESIDENT OF THE UNITED STATES: I, Alan Greenspan.
ALAN GREENSPAN, CHAIRMAN, FEDERAL RESERVE: I, Alan Greenspan.
BUSH: Will solemnly swear ...
(END VIDEO CLIP)
VILES: ... then by President Bush, nominated a third time by President Clinton, and a fourth time by President Clinton. His current term expires in 2004.
BAKHTIAR: We have even more economic news for you now. Tuesday's move by the Fed was designed to boost a slowing economy. One indication of a downturn: the recent number of layoffs by major corporations. The U.S. Bureau of Labor Statistics reports that, last year, there were more than 5,000 mass layoffs. In today's "Business Desk": some advice for workers who might be nervous about losing their jobs.
Valerie Morris reports on what to do should a layoff happen.
VALERIE MORRIS, CNN CORRESPONDENT (voice-over): The list of companies cutting their work force grows by the week. Financial advisers say, if it happens to you, immediately talk with your employer about a severance package.
KATHLEEN GUMEY, CEO, FINANCIAL PSYCHOLOGY CORP: Some of the questions you can ask are: How many months will you cover my sudden loss, my downsizing? Will you give me the advise, perhaps, of a financial adviser that I can sit with to go over planning my financial future? What will my benefits look like?
MORRIS: Some other points to ponder, according to FinancialLearning.com: Apply for continuing coverage of your health insurance via COBRA. If you have stock options, negotiate the vesting period to get money to you quicker. Also, get some extra cash, whether from family, friends or a part-time job.
Some things advisers recommend not to do: Don't take out a cash advance from your credit card or a loan against your home.
MARION ASNES, SENIOR EDITOR, "MONEY": These are things that you do that people tend to do first, but really you should do last, because the interest rates are very high if you take a loan on a credit card. And if you take a loan against your house you, of course, run the risk of foreclosing if you can't make the payments.
MORRIS: Also, advisers say tie up loose ends. If you have an outstanding loan on your 401(k), you have 60 days to pay it back without penalty. And throughout the whole process, stay calm.
ASNES: Take a deep breath, because it's a very scary thing. At this point, you have layoffs happening throughout the economy in what seem like they should be fat-cat jobs, as well as in everyday jobs. So you're not alone. It's not unheard of. People will understand. People will still like you, trust you and respect you. It's not the end of the world.
MORRIS: That's "Your Money." Valerie Morris, CNN Financial News, New York.
BAKHTIAR: Our business theme continues in "Worldview," as we travel to New York City and Harlem, a neighborhood in the midst of an economic boom. We also look at its rich cultural history. Maybe you've heard of some of Harlem's most celebrated artists, such as painter Aaron Douglas and photographer James Van Der Zee. These artists and others helped make Harlem the cultural capital of black America in the 1920s. And their fame still reaches around the world.
SHELLEY WALCOTT, CO-HOST: On to Harlem, a very colorful and cultural district in New York City: Harlem occupies a large area in northern Manhattan Island. It's a neighborhood with a long and rich history. During the 19th century, Harlem became a fashionable residential district with many homes used as summer retreats.
Apartment houses started popping up during the building boom of the 1880s. And many were rented to the growing African-American population. After World War I, Harlem became the center of creative literary development at a time known as the Harlem Renaissance. Harlem has been known as the center of black culture, an area that produced writers, dancers and singers. But there were some low points. Overcrowding, combined with poor building maintenance and a high crime rate, gave Harlem a bad reputation. But that reputation appears to be on the mend. The historic brownstone houses are being renovated. Jazz has returned to the clubs. And crime has fallen dramatically.
CNN's John Vause reports on what is being called the next Harlem renaissance.
TERRY LANE, U. MANHATTAN EMPOWERMENT ZONE: The word is out. There is a new day in Harlem. Harlem is undergoing a wonderful economic renaissance and cultural regeneration.
REV. CALVIN BUTTS, ABYSSINIAN BAPTIST CHURCH: Unemployment is down. People have jobs, young men and women. Certainly it is a lot better than it was. So people are living better. They're living longer, and they have hope for the future.
JOHN VAUSE, CNN CORRESPONDENT (voice-over): For America's most famous black neighborhood, these are promising days. Once described as an urban hell with gutted, boarded up tenements, a dangerous place where drugs were openly sold and used, today Harlem's historic brownstone townhouses are being restored to their former glory.
There are new businesses, a Starbucks, a new supermarket, the first to open in a generation, and violent crimes are all down.
Tourists are coming by the busload. According to one study, Harlem is New York's number-one destination for international travelers - especially the French. They come to see street art, for the music and for a gospel service. On any Sunday at the Abyssinian Baptist Church, the line stretches for a city block.
Even former President Bill Clinton is likely to set up office here.
WILLIAM J. CLINTON, FMR. PRESIDENT OF THE UNITED STATES: So I called Hillary and I asked my senator first how she would feel about me coming to Harlem. And she loved it.
VAUSE (on camera): But there is still an image problem - one of high crime and violence, where outsiders are unwelcome. For many New York taxi drivers here on 110th Street, it's the end of the line. They refuse to take passengers any further uptown and into Harlem.
Tell me, can you walk the streets safely at night?
LANE: Absolutely. Absolutely. It is the most significant economic development...
VAUSE (voice-over): Terry Lane gave up a job as a Wall Street banker to head the Upper Manhattan Empowerment Zone, a government agency with $300 million for cheap loans to encourage local business and bring in new investments. LANE: I typically like to lend to clients below market. I also - I want to make deals happen. One of the things that I insist that we do is that we bring other partners to the table, other investors - venture capitalists, other banks - because I want to show them that this is a great place to invest, that this is the new frontier, the new emerging market for America.
VAUSE: But this urban renewal is about more than economics.
(JAZZ MUSIC PLAYING)
VAUSE: The jazz is back. Just like the '20s and '30s during what was called the Harlem renaissance when the neighborhood thrived. It was the focal point for jazz, literature and political expression. Now a new Cotton Club has opened. The legendary Apollo Theater, where the greats like Duke Ellington and Ella Fitzgerald once performed, has been refurbished.
And clubs like the Lenox Lounge, opened 62 years ago, are once again the place to be.
Alvin Reed has owned the Lenox for 12 years. These days, he hosts corporate parties, and some nights he turns customers away. But when he bought the Lenox, business was so bad he almost went broke.
ALVIN REED, OWNER, LENOX LOUNGE: Because we didn't have the customer base for it. And jazz just wasn't in Harlem like it was, and there wasn't a lot of local interest in jazz. So I had to stop. I stopped for about six years.
VAUSE: These days many musicians are now coming home.
REED: A lot of them really, this is their roots, and they haven't played here in 20, 30 years. So sometimes a lot of them are paid very well downtown, but you know, they'll adjust to our pay scale up here because they need that attachment to Harlem.
And we get some new musicians that their managers say you have to play up in Harlem. We have to be able to put that on your resume. If you go up there for nothing, you've got to up in Harlem and play. So we've got a long list of musicians that want to play here. We just can't accommodate them all.
VAUSE: The Aaron Davis Hall is Harlem's main performing arts center. Home to 35 companies, it has one of the most diverse programs in New York City and provides an outlet for a new generation of actors, musicians and dancers.
PAT CRUZ, AARON DAVIS HALL: It gives children, their parents, residents in this community a sense of pride in the kind of accomplishment and achievement that can be made by talented people. And I think that what happens is it makes you feel good about who you are. And if you don't have that, you don't have anything.
It gives a sense of hope and involvement and participation and an opportunity for that. I think that what we're saying here and what we do here is that this isn't a monolithic culture. It draws upon world culture, and we draw upon that. So that as we present here, you will see Latinos. You will see Asians. You will see African Americans. You will see white artists. You will see people who come together because they have a common need to express themselves.
VAUSE: Through all the good times and especially the bad, the church has been a constant, working closely with the community not just in a spiritual sense but also in practical ways.
BUTTS: In the midst of all the crime and the drugs, we kept the vision of a better Harlem in front, a better world. We kept talking about what we could do in terms of building housing, what we could do in terms of reaching out to men and women who were ravaged by drugs, what we could do to help people who were victims of crimes. These kinds of things the church was and is engaged in.
VAUSE: A decade ago, a medical study found a man in Bangladesh had a better chance of living to 65 than a man growing up in Harlem. Heart disease, cancer and homicide were the main reasons. While those causes are claiming fewer lives, the black community is now dealing with AIDS, and there is still the issue of illegal drugs.
But Harlem no longer stands out.
(on camera): With all the restorations, all the renovations, though, come much higher property prices, much higher rents. And for many residents, especially those who have been here all their lives, there is now the fear that it may become too expensive to live in Harlem.
BUTTS: Where people were used to getting - paying $400, $300, now they're paying as much for similar apartments that have been rehabilitated, similar in size but rehabbed. Now they're paying as much as $1,600, $1,700 a month.
VAUSE: To ease the problem, community groups have been working with the government to build low-cost housing to ensure no one is left behind in this second Harlem renaissance. And while there are still problems -- no one suggests otherwise -- Harlem now has the most valuable commodity of all: hope, hope for even better times to come.
John Vause, CNN, Harlem, New York.
ANNOUNCER: More from New York next week on NEWSROOM, when we take you to Times Square.
(BEGIN VIDEO CLIP)
TAMA STARR, CEO, ARTKRAFT STRAUSS: There are really two Times Squares: the one that's made out of bricks and mortar and steel. And then there's the one that exists in people's minds.
(END VIDEO CLIP)
ANNOUNCER: Join us next Wednesday for that story.
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It's easy. It's free. It's your curriculum connection to the news. After all, the news never stops. And neither does learning.
BAKHTIAR: In "Chronicle," we bring you full circle, as we continue our look at the economy. As important as it to understand what's going on, it's not always easy. Major indices, rate hikes, bull markets, bear markets, economic distress, the law of supply and demand: What do they all mean? Now one Harvard professor is making understanding them easy for students.
CNN Student Bureau's Cynthia Phillips has the story from Cambridge, Massachusetts.
CYNTHIA PHILLIPS, CNN STUDENT BUREAU REPORTER (voice-over): It's a subject in classrooms across the country: economics. Everyone can use it, but many students just don't get it.
ANDREW CLARK, HARVARD UNIVERSITY STUDENT: I think a lot of students don't like learning by theory. They like something that is really concrete.
PHILLIPS: One Harvard professor recognized the problem.
GREG MANKIW, AUTHOR, "EASY ECONOMICS": The biggest single obstacle is excessive mathematics: the sense that this is really just a field about curves and graphs and shifting one curve relative to another curve.
PHILLIPS: A slower reader himself, Greg Mankiw found a way to explain it differently.
MANKIW: With the book, what I tried to do is bring back to popular culture, bring back the things that students have experienced in their lives, even if they have only experienced them indirectly.
PHILLIPS: Harvard saw his potential, offering him tenure at age 29.
JERRY GREEN, FMR. CHMN. OF ECONOMICS, HARVARD UNIVERSITY: We were convinced that we had in our department a person who had a very high trajectory, a great future ahead of him. We were impressed with his work and with his energy. And that is when we promoted him. PHILLIPS: The decision paid off. In 1992, "The Principles of Economics" was published. Harcourt Publishing offered Mankiw the first ever $1 million advance on a textbook.
MANKIW: It was stunning. I felt like people must feel like when they win the lottery.
PHILLIPS: Mankiw's book is used at Harvard from the beginning to graduate level.
JUDITH, PROFESSOR, HARVARD UNIVERSITY: Professor Mankiw uses a lot of kind of different types of examples of the real world to really elucidate a lot of the ideas.
PHILLIPS (on camera): Mankiw's impact extends farther than the classrooms of Harvard, however. "The Principles of Economics" is the No. 1 selling college textbook. With 16 different translations, it reaches countries such as China, Japan, Russia and the U.K. Mankiw's idea now is to reach students before they get to college.
(voice-over): "The Principles of Economics" is hitting high schools across the country.
MATT MURPHY, ASHLAND HIGH SCHOOL STUDENT: They use a lot of diagrams, so you can understand what is going on in our modern economy. You can understand how our government works.
PHILLIPS: Not since Nobel Prize winner Paul Samuelson has an economics text has such broad appeal. Today, Samuelson's son uses Mankiw's book at Boston University.
WILLIAM SAMUELSON, PROFESSOR, BOSTON UNIVERSITY: I think my father thinks very highly of him, and, by reflection, the book. It can be used on a lot of different levels, but it's not trying to make things too simple.
MANKIW: I never pretended that I could be as successful as Paul Samuelson's book. And it is still to be seen. The book -- my book is selling very well, but Paul's book sold very well for 50 years.
PHILLIPS: Many people have their eye on Mankiw for the next Nobel Prize in economics, tagging him as the new Samuelson.
MANKIW: I found, to my surprise, a copy of the first edition of Samuelson and asked him to sign it. I figured having a first edition of Samuelson signed by Samuelson was sort of a valuable thing to have. So he signed it. And he said, "To Greg Mankiw, who made this obsolete," and then signed it "Paul Samuelson."
BAKHTIAR: Tomorrow, we'll take your nose out of the books and get your head in the clouds for "Storm," a CNN NEWSROOM special report. It's all about the weather, what it is and how it affects us. Then get ready because there's another storm on the horizon for Friday. That's when CNNfyi.com hosts "Storm: Extreme Weather," a Web cast exploring destructive weather forces and the changing global climate. That's taking place from noon to 3:50 p.m. Eastern.
And that's it for now. Have a great day. And we'll see you back here tomorrow.
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