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ANDERSON COOPER 360 DEGREES

Encore: CNN Money Summit: Stimulus Breakdown

Aired February 20, 2009 - 23:00   ET

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


ANDERSON COOPER, CNN ANCHOR: Welcome to the second CNN MONEY SUMMIT. We hope the next hour will help you understand exactly what is happening to this country's economy, to your money and your future. Now more than ever we need to have the facts to fight the fear which threatens to paralyze our economy and our lives.

You know a deal has been reached on a massive, nearly $800 billion stimulus plan. It's about 65 percent government spending to make up for loss consumer spending and investment and 35 percent tax cuts.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The American Recovery and Reinvestment Act that I will sign today, a plan that meets the principles I laid out in January, is the most sweeping economic recovery package in our history.

(END VIDEO CLIP)

COOPER: The measure overcame stiff resistance from Republicans, not just over the mix of taxes and spending it contains. Many objected to the fundamental role government spending should play in battling recessions.

What we want to do tonight however, is set aside the politics and give you the facts of the plan so you can see what it means for you and your family.

Ali Velshi is going to be leading a distinguished panel of experts, asking really the essential questions. Will this work, how quickly, and where can you first expect to see results?

That's your bottom line and that's ours. Here's Ali.

ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Anderson thanks.

This recession in particular threatens your ability to improve your economic standing in life, to grow your wealth. President Obama and Congress have a plan to contain and reverse the damage, a nearly $800 billion plan. Here's where it can help.

On the job front, businesses, big and small, laying people off; state governments out of money, doing the same. Well, how will this stimulus help and where will it fall short?

On the home front, sales are down, prices are plummeting, foreclosures are spiking; almost 3 million last year. Construction jobs in building, moving, finance, you name it, they're shrinking.

On the money front, retirement accounts, 401(k)s, IRAs, they've been ravaged. We'll look at bailouts, tax cuts, stocks, and bonds, all with an eye toward your bottom line and how the stimulus bill affects it.

And with trillions of real dollars and a boatload of political capital being spent fixing the economy, what about other campaign priorities? Reforming healthcare and green energy? Are those still within reach?

Well, with us, a distinguished panel, including "Fortune" magazine Managing Editor Andy Serwer and CNN Senior Political Analyst David Gergen.

We'll get to our panel in a moment. But first, the big picture of a very big and very costly gamble on your future and mine.

(BEGIN VIDEOTAPE)

VELSHI (voice-over): With massive spending and modest tax cuts, a revised and reduced stimulus plan has finally been delivered to the president.

SEN. HARRY REID, (D) NEVADA: We're so fortunate we were able to get it passed. It's going to give this country a shot in the arm.

VELSHI: And signed into law.

OBAMA: We have begun the essential work of keeping the American dream alive in our time. And that's why we're here today.

VELSHI: It's the biggest stimulus package in history, and without it, many Democrats and many economists believe the country would face the darkest economic days since the Great Depression.

REP. NANCY PELOSI, (D) CALIFORNIA: We cannot allow the perfect to be the enemy of the effective and of the necessary.

VELSHI: Their argument, consumers and businesses have stopped spending, and if the government doesn't step in, businesses will continue cutting jobs, adding to the 3.6 million people already laid off in this 15-month recession.

The counterargument from many Republicans and fiscal conservatives --

SEN. JOHN MCCAIN, (R) ARIZONA: We are committing generational theft. We are laying a huge deficit on future generations of America.

VELSHI: That this bill will only make our economic problems worse, with more debt and the government more involved with our businesses and lives.

STEPHEN MOORE, EDITORIAL WRITER, WALL STREET JOURNAL: I tried to explain this bill last night to my seven-year-old son. I told them, what they're doing here, David, is they're basically spending all this money and they're taking money out of your piggy bank. And this really is financial child abuse and I think generations will curse us for doing it.

VELSHI: Not doing it is the much bigger risk according to moderate and liberal thinkers, who argue this spending plan is not only a way out of our current financial funk, it's also a down payment on our economic future.

STEPHEN LEEB, AUTHOR, "GAME OVER": If the government is investing in alternative energies, if the government is investing in technology infrastructure, or, as in the past, in an interstate highway system, that can do everybody a world of good. Puts people to work and it makes an investment in the future.

VELSHI: Americans will decide which side got it right. If they think the plan will stop layoffs, increase home prices and push stock prices higher, consumers will decide to start spending again. Once that happens, businesses will take the cue; firing up idle factories, hiring back laid off workers, and getting back to the business of making America work.

(END VIDEOTAPE)

VELSHI: Now, here's how the plan breaks down. We'll talk a lot about it this hour, but here's how it breaks down in its largest sections.

The biggest section is $308 billion in spending, or as you just heard Stephen Leeb say in that story, investment. This is infrastructure and science, energy projects and so many others.

The next biggest portion, $267 billion is safety net spending. Spending designed to help those people who have fallen through the crest. Increased unemployment benefits, increased COBRA benefits and food stamps.

And the smallest portion, about a third of it goes to tax cuts. These are tax breaks for individuals and for businesses.

Now, this is a major, major package. It's a lot of money and it's pretty big. This is it, in fact it is nearly as long as "Gone with the Wind," which was a best seller back in the Great Depression, and like "Gone with the Wind," it is a page-turner.

But don't wait for the movie; we're not going to do that. We're going to go straight to our panel to explain whether or not this has what it takes to fix our economy.

Telis Demos, I'm going to start with you, is this plan going to do the job, you can all agree with this well, Telis is talking about it.

TELIS DEMOS, WRITER, FORTUNE: Well, is it going to do the job in terms of fixing everything that's wrong with the economy right now, which starts with the financial sector, which extends to homeowners, the housing sector, no, it's not going to do all those things.

Is it going to create some jobs? Is it going to invest in needed stuff, needed infrastructure projects, healthcare infrastructure? Is it going to help states overcome fiscal deficits? Yes.

It's going to do a lot of things in the short and medium term over the next couple of years, create some jobs, put some people back to work, who haven't been or people who are going to be fired and keep them employed. Is it going to fix everything? I don't think so.

VELSHI: Katie, enough tax breaks versus spending?

KATIE BENNER, WRITER, FORTUNE: Well, I think that one thing with the plan was in order to try please everyone, it was very, very partisan, they may have created the bill that's just not quite big enough to do any one thing. The tax breaks might not be enough, and then the spending going forward in the future might not be large enough. I think that's one of the big complain about plans, is that it was a plan by committee, and so it just might not do the job.

VELSHI: Andy, how much of this is going to be things that happen because of this plan and how much of it is the message that goes out to Americans that this government is on the case and you can be confident again about this economy?

ANDY SERWER, EDITOR, FORTUNE: Well, it's important that the government shows that they're on the case, and I think that's part of it. But I think, I'm going to go out on a limb here and some people are not going to like to here this and maybe David Walker, but I don't think this plan is big enough.

I think we're going to need to spend more money. We spent $600 billion plus on the war in Iraq. We can spend more than $1 trillion on trying to get this economy straightened. In the 1930s, the unemployment rate went to 25 percent; the economy contracted by 30 percent, the stock market was down by 90 percent.

What we're trying to do right now is to prevent that from happening. And that's going to cost a lot of money.

VELSHI: David Walker, former Comptroller General of the United States, do you think we need to spend more money, or is this going to do it?

DAVID WALKER, FORMER COMPTROLLER GENERAL OF THE UNITED STATES: We need to spend more money. We need to spend it more intelligently. Basically, this is not a stimulus bill. All right? Probably, maybe a third of this is a stimulus bill. That's why they don't want to refer to it as a stimulus bill.

People say this is a down payment. I think they're being honest. There are going to be a number of other things that are going to cost hundreds of billions of dollars, potentially trillions of dollars coming. And guess what. It's all borrowed money.

VELSHI: Well, let's talk about borrowed money. Let's look at the states. I want to show you about a growing problem in the United States and that is state deficits. These are states that do not have money to meet their obligations. And we can look across the country and take a look at this.

We've highlighted in red those states that either have or are projecting a fiscal deficit, which means that they are taking in less money than they're spending. Only four states don't have one, North Dakota, Montana, Wyoming, and West Virginia, or not expecting to have one over the course of the next year.

Many of the deficits are here in the northeast. Take a look at some of them. In New York, the deficit is projected to be $15.4 billion. New Jersey - $6.1 billion. Take a look at Florida, it's another one of the big ones, $8.1 billion.

But the biggest of all and you'll probably heard a lot about this on the news, is the state of California with a projected deficit of $39.6 billion. And that means that they are thinking about laying-off a lot of people. In fact, the discussion is that California may have to lay off more than 20,000 state workers.

Now, the issue here, David Gergen, is this a stimulus plan, or is this a stop gap to prevent things from getting substantially worse than they are now?

DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: Well, it's certainly going to help in the short-term. If you're working for the State of California right now and you got one of these notices saying you're about to be laid off and money comes into the state, there's a reasonable chance your job will be saved.

And in the near-term, what this bill will probably do is save jobs, it will not create jobs. What the White House is hoping is that in the longer term, say 2010, it will actually begin to create new jobs. But that's going to be a ways down the road.

I think the other part of this, though, that we have to recognize, as Andy said and as David Walker said, the hole we're facing and the sort of the lost economy over the next three years is about $3 trillion, according to the Congressional Budget Office.

This stimulus package is only about a third of that at best. David Walker would argue it's only a tenth of that or a fifth of that. So it's a much bigger hole than what we're filling. And that's why I think a number of us feel there's likely to be a stimulus two, maybe a stimulus three. We're going to be facing additional request for money from the administration in the months ahead.

VELSHI: Here's a question we're getting from a lot of our viewers and our readers of CNN.com, is how this stimulus is going to affect them.

Donna, I want you to listen to this. This is an email we got, a message we got on Facebook from Shamare in Delaware. She asks, "Why can't the government, the so-called stimulus refund/rebate going to Joe American is a whopping $400/$800 which breaks down to a few paltry dollars in a paycheck. Why can't they just send people a check for their rebate/refund and let them actually use it productively?"

Donna, and what she's talking about is that it'll be divided into $20 or $25 a check. And I think the sentiment here is that, I can make that decision better than the government can. Why don't you just give to me and let me what I want with it.

DONNA ROSATO, SENIOR WRITER, MONEY: We tried that a year ago; $168 billion we sent out in rebates and stimulus checks and you know what happened to that money. People saved it or used it to pay off debt. They didn't deploy it into the economy.

So it's not enough, I think we've seen that. You can't just use tax cuts and rebate checks. It isn't enough and that's why the stimulus has to play a bigger role. People are nervous, they're becoming savers. That's great in the long-term, that's not good in the short-term. And some of this stimulus is directed at getting people to spend money.

VELSHI: Ryan Mack, you deal with people on a daily basis, and their finances, you're a financial planner. What is causing people to re-engage in this economy? Is it that they can't credit, is it that they haven't got any money saved up, is it that they're worried about losing their job? What is it?

RYAN MACK, PRESIDENT, OPTIMUM CAPITAL MANAGEMENT: There's so much of happening and is in the lack of consumer confidence. Essentially, individuals, John Doe is very worried about buying a house if he's going to lose his job.

So in terms of giving money away it's not going to be effective as the last time we did it. We only had a bleep in GDP, essentially because going forward, we are already an over-leveraged economy and I can't in good faith tell someone to go out and spend money when you have an X amount of $1,000 already in credit card debt. It just not responsible.

VELSHI: So what might be right for the economy is not right for your client.

MACK: Exactly.

VELSHI: Walter, I'm coming to you last because I wanted you to read through your section of the stimulus. What is it that's going to get people back into this economy? Because ultimately Ryan just talked about consumer confidence. It's at the lowest point since we began measuring it back in 1985.

WALTER UPDEGRAVE, SENIOR EDITOR, MONEY: Yes, and I think what we need. We need confidence that things are going to get better. And I think that part of passing this package is to try to get people, give them this confident feeling that the government is doing something, is on their side.

In fact, I think we have to be honest. I think what this is really doing is kind of providing some short-term relief. I don't think the long-term effect is going to be that great. VELSHI: Ok, we're going to start ripping this apart, but there's something I want to show you first. We just talked about consumer confidence. That was a measure that was started back in 1985 and it was considered 100 back then. Today it's at 37; it's the lowest that it's ever been.

Let's look at other ways to measure how things are compared to how were because people keep talking about where things were in the 80s. The yellow lines on the bottom, that's unemployment. The red lines on the top, that's inflation. These have been put together to create something called the Misery Index.

And if you see, if you go back to 1981, inflation is a little higher than it was today -- but I'm sorry unemployment was. But look at where inflation was, there are a lot of people who use this to say, things were way worse in the '80s than they are today. We're starting to creep up on the Misery Index. We're a 9.6 compared to 20 back in 1981.

There are though, other things, other ways to measure the economy. What's your house worth, how much did it lose? How much are we producing as a nation, and how much are we saving? What is our income compared to what it was back then?

We're going to answer all of those questions when the CNN MONEY SUMMIT continues.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: Jim, the Head of Caterpillar said that if Congress passes our plan, this company will be able to rehire some of the folks who were just laid off. And that's a story I'm confident will be repeated at companies across the country.

(END VIDEO CLIP)

VELSHI: But no sooner had President Obama spoken than the CEO of Caterpillar said, well, he's still got more layoffs to come on top of massive cuts already; since the election, 20,000 layoffs already at Caterpillar.

But look at some of these other major, major layoffs: 53,000 at Citigroup; 30,000 at Circut City, which has filed for bankruptcy protection and is shutting down; 20,000 at Pfizer; 12,000 at AT&T; 10,000 at General Motors.

These keep on coming. The stimulus aims to create or preserve 3.5 million jobs and it contains tens of billions of dollars to extend jobless benefits and to help states avoid layoffs.

Now, we've got an email from a gentleman named Trevor. Trevor sent us an email from 29 Palms California in the San Bernardino Valley. Let's take a look at his email. He writes, "I'm separating from the Marine Corps in two months after four years of honorable service. I plan on moving to Las Vegas because it seems to me like a place where the economy is still thriving. Am I right to think this and if so are there other cities where the job market is still good?"

Well, let's take a look at San Bernardino County. The unemployment rate there is 10.1 percent. Let's take a look at Las Vegas, not too far away, but maybe not the place to go if you're looking for a job. It looks pretty active, but it has an unemployment rate of 9.1 percent. Not fantastic if you're relocating somewhere to look for a job.

Let's take a look at the lowest and the highest unemployment rates in the country. You can see that the lowest rates are concentrated in a particular area of the country; South Dakota and North Dakota, Nebraska, Wyoming and Utah.

But again, you're looking at Las Vegas, well, Nevada has an unemployment rate of 9.1 percent as a state. California, 9.3 percent, those are some of the highest.

Let's take it over to East Coast and see what we've got here. The highest in the country, Rhode Island, 10 percent and Michigan, always been the highest in the country, at least for several years, 10.6 percent. South Carolina has an unemployment rate of 9.5 percent.

So the issue here, and it maybe that this crisis started in the housing market, but ultimately, this stimulus program has to affect jobs.

Katie, I want to start with you on this one. Do you think that this stimulus plan is going to create a substantial number of jobs in this country?

BENNER: I think the best we can hope for is that the stimulus plan currently will only help people who've lost their jobs. A lot of economists, as David said before, have said that we're not going to see job creation until 2010.

So that gives us another more than a half a year for people to be laid off and need help. And that's what the stimulus does do; it extends unemployment benefits, healthcare benefits. It gives people -- provides day care for people who are struggling to keep their jobs. And that's where the stimulus will do well.

VELSHI: So, Walter, what do people do who are watching this right now and say ok, we've fought for this, it's gone through, it's more money than we've spent on anything, and it's not going to necessarily turn markets around, it's not necessarily going to increase housing prices.

But ultimately the thing that is scaring and keeping their money in their pockets is the job situation.

UPDEGRAVE: Well, I think that people have to hope that this job creation maybe happens a little more quickly. Most of the jobs are going to be created in 2010, 2011. And that's to the extent they're created.

I mean, I would have a lot more faith in this as a job creation measure if it weren't so sort of highly politicized in some part. For example, if you read through that thousand page opus, and you get the page 489 and you find this "Buy American" provision that requires the use of American iron, steel, and manufactured goods.

Now, it does allow for a waiver, but you have to -- the head of the federal agency who uses the waiver to buy non-American steel has to publish a written justification in the federal register and they have another exemption, if it doesn't add more than 25 percent of the cost. But the thing is, is that whenever the government spends money you get these political overtones to it that can reduce the economic effectiveness of it.

VELSHI: I want to show you something about unemployment on the wall here.

David Gergen, I'd you like to particularly concentrate on this one, because we've talked about an unemployment rate at 7.6 percent. We started January 2008, right before this -- right when this recession started with a national unemployment rate of 4.9 percent and we've moved our way gradually up to 7.6 percent.

But this is not even half the story. Let's talk about all those people who are underemployed in America. Jobs that don't have benefits, jobs that don't pay them enough, but they've had to take a job to stay working. If you add underemployment to this, it was a lot higher a year ago and now we're looking at 13.9 percent.

This is serious. We're now talking about double digits; we're talking more than 11 million people in America unemployed and several more million underemployed.

GERGEN: This bill will help relieve some of the suffering. For example, if you're unemployed and you've got to go pay for health insurance under your COBRA plan, that can cost you over $1,000 a month.

This bill is going to help subsidize that and make that payment less expensive, so it does relieve some of the sufferings.

But the critical thing is, I think what several of us are arguing is, this bill is not going to jolt the economy in the way the President talked about in a sense of bringing us up. What it will help to do in all likelihood is make the downturn not as steep.

VELSHI: One of the things that a lot of economists point out is that in a growing economy, if you just wanted to keep your unemployment rate steady, you'd actually have to be adding 100,000 jobs or more per month.

Ryan, you have clients who are coming into you probably with several questions on their mind, one is about investing. And we're going to talk about a little later.

MACK: Right.

VELSHI: Do you have clients coming in telling you they've either lost their jobs or are worried about it?

MACK: Well, we have a lot of fears and concerns in the market right now. And the bottom line is, if you look at every recession and depression that we've had, ever since 1930 and what brought us out of, it really was the will of the people. That individuals say, you know what, we're in a recession right now. I need to start going out and try to find myself a different trade or try to create something.

World War II was a tremendous example of individuals going in and saying, "You know what a lot of the jobs and workers overseas, we need to train ourselves." So in this market we're training a lot of individuals, maybe think about starting your own business, maybe start getting further education, start doing some things to try to invest in yourself so you can get further without relying upon the stimulus package or legislation to pass. Do things for your own self and move yourself forward.

GERGEN: And Ryan, I wish that were the whole story. And I think you're right. In World War II, a lot of people did learn new skills. But it was also true that World War II itself was a huge public works program.

MACK: Exactly.

GERGEN: The biggest in the history of the country; that was government spending. And that's the issue here. Whether we need that kind of huge public works program to really get us --

SERWER: I think a lot of that is in some of the legislation, we're looking to transform the auto industry, energy, healthcare. And those are the things that could be transformed and where we could see thousands and maybe millions of new jobs.

VELSHI: But Telis is it transformational? I mean, we've got some health records that we're going to fix and we've got to winterize some houses. Is it a lot of stuff?

DEMOS: It's a lot of stuff in essence, but going back to something that Walter was talking about with the "Buy American." "Buy American" maybe creates more jobs in the short-term. More work goes to U.S. steel companies and things like that.

But in the long run, should the U.S. be in the steel business? Would our economic resources better be spent in a new economy industries like weatherizing and new energy and stuffs like that.

And I think what Mark was saying about how during the Great Depression, people learned new skills, they've learned new industries and they brought women into the workforce. Which is an enormous transmission and those are the kinds of things that we have to start doing. And I think that there's not enough of it in the stimulus bill, and that's why I think were all saying it's not a game changer it's because that there's a lot of money to keep people doing what they are doing right now.

VELSHI: Another problem we have to transform is the housing issue. And here's the double whammy. Jobs are tough to come by, and what many people used to use as a personal piggy bank, over the last couple of years is their homes, they're not worth as much either.

Take a look at this, this is the -- how home prices have looked in the United States; the average home price in the United States since 1979. You can actually see not altogether unsteady; a nice little line going along until the early 2000s.

Take a look at that, in 2006 the median price for a home was $276,000. We have dropped this down. You can only see as far as 2008, those numbers continue to drop.

More on home prices and what this stimulus is going to do for them when we come back on the CNN MONEY SUMMIT.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

ANTHONY STEEL, CNN IREPORTER: The average cost of a foreclosure is $218,000. Even if we bought up a million of those foreclosures, one million foreclosures would be $218 billion. It's a lot less than we've already bailed out Wall Street and a whole lot less than the stimulus package is.

(END VIDEO CLIP)

VELSHI: That was iReporter Anthony Steel. His numbers are off, but the idea is one that many people are asking. Why doesn't the government just buy up foreclosures?

Let's talk about it with our panel. When we first heard about TARP, Andy, the idea was it was going to be, they were going to buy up the bad assets, the things nobody wanted, which might have involved mortgages or properties even.

A lot of people are asking, why don't we just spend the money and do what we were supposed to do in the first place?

SERWER: Well, I'm asking the same question. And I think finally, this administration is moving towards that strategy of directly helping homeowners. That's going to be sorted out over the next couple of days and weeks.

But to me it seems like it makes a lot of sense. You've heard this before but it's a fundamental question, and I don't think it's been answered properly which is, if the problem started with homeowners, shouldn't we address that problem directly? VELSHI: We've never had a recession starting with a housing bubble before, but now this has evolved into something so much bigger. Is that where the solution lies, do you think?

GERGEN: The administration believes that they have to tackle the housing as part of this. What they think of, there are three pieces, what they call three legs to this stool. One, we've been talking about the stimulus. A second is the banking industry or the financial part of the equation. And the third is housing and housing is an essential part of that.

So the TARP two money, as we've been calling it; the extra $350 billion...

VELSHI: Right.

GERGEN: ... they're designating $50 billion of that to go into helping on housing and trying to stop this flood of foreclosures.

Now, there are serious questions about what the president is trying to do here. And that is, what do you do about the free rider program? What do you do about the couple that has been paying their mortgage...

VELSHI: Right.

GERGEN: ... staying in that house and next door there's another couple that's been delinquent, that's been out spending money, going to Las Vegas, doing having a lot of fun time. Is it fair to the first couple when the second couple gets bailed out?

VELSHI: Yes, we get emails and calls about that all the time.

Let's answer a direct question from Brina in San Diego. It came in through our 360 blog.

"My husband and I would like to buy a home in one of the most troubled areas of San Diego County. The $15,000 tax credit may have been enough incentive for us to move forward with our plans but now it's been drastically reduced. Rumors of a set four percent government backed mortgage have been circulating in the media for weeks but no details. Should we wait to buy?"

So let's start by taking a look at San Diego and how home prices have behaved there over the last several years. Let's go back to 1999 when the average price of a home was around $205,000. Look at that run up, all the way up toll $574,000 around 2005, 2006 and then right back down again -- still pretty high, to $332,000. That's in San Diego County.

Take a look at what that same picture looks like across the rest of the country. These are national home price averages. Back in 1999, home prices were about $122,000. You could see the run up was up to an average of $252,000 back in 2006. And it's been coming back down. Now, the median price is about $180,000. Let's take a look at what mortgages are doing. They've been moving around a lot in the last month or so, but right now a five-year adjustable rate is about 5.25 percent. A 30-year fixed, if you've got good credit, about 5 percent. Some people have been able to refinance at rates as low as 4.8 percent or 4.6 percent, Donna.

So when you take Brina's question, what do you make of that? Should she be waiting for some government plan? Should she be refinancing if she can afford the house or buying this house if she can afford it?

ROSATO: This is actually the silver lining in the economy right now. For people who are first-time home buyers and have good credit and have a job or people who want to refinance, rates are low and you can actually get some pretty good deals right now. Home prices have fallen significantly.

Should she do it or not? It depends. Does she have good credit so she can qualify for the lowest rates? Does she have a steady income or does she even think she's going to keep her job? That's going to determine how good of a deal it's going to be for her.

VELSHI: Walter, your house has to be the place that you decide you want to live, not the best bet on what's going to happen in the next year.

UPDEGRAVE: Right. And I think one of the possible downsides of these various housing goodies that are either being thrown out there or people are hoping that are going to thrown out there is you may have people who are going to buy anyway just because housing prices had come down, things start to turn around, and now you have a situation where somebody -- gee, there was $15,000 they were talking about. It's $8,000 now. Last year it was $7,500 that had to be paid back. Will they push mortgage rates down to 4 percent?

You have people kind of sitting back waiting for this let's make a deal from the government which is not a good thing. You want the economic fundamentals to be deciding whether people buy houses or not.

SERWER: I think in a lot of markets, things are still frozen. Nine percent of all U.S. mortgages are delinquent or in foreclosure right now.

VELSHI: Right. And that means at any point, it means they could be three months late, all the way...

SERWER: Exactly. So I think there's, unfortunately, there's more pain.

VELSHI: Ryan, one of the things I wanted to illustrate with Brina's e-mail is that while we certainly didn't see prices across the country go as high as they did in San Diego County, that trend has been the same across the country. Are you getting clients asking you, is this the time to buy, is this the time to refinance? Should I lock in or should I wait? RYAN MACK, FINANCIAL ADVISOR: If you have a 500 FICO score and you're -- can hardly make your rent payments. And someone comes to you and says, I don't need any of your information, we can get you into a home today, you're probably not in the best situation to purchase a home responsibly.

Now we have to look at ourselves, how much money do we have saved, let's do the old traditional 20 percent down strategy. Make sure of our Fico score, let's go 750 or higher, let's shoot for that and make sure we take that frequently.

VELSHI: David Walker, you're a big fan of discussing overextending yourself as a country and an individual. Take a look at these numbers, percentages of homeownership of homeownership in the United States, going back to 1965. It wasn't bad. About 63 percent of the population owned a home.

Again it remained relatively steady over time. And then once again, I don't know what was going on in the 2000s, but we just started to shoot up to almost 69 percent, almost 70 percent home ownership. We've seen that drop between 2004 and 2008, some of that because people are forced out of their homes.

Was it the right thing to do? Was that American dream that said you should own a home at almost any cost the right thing? And maybe should we be re-evaluating that and not sending the message that people should own homes at any cost?

WALKER: Well, there was a social policy to try to explain home ownership, but the problem is that people started making loans based upon the value of the home and the assumption that it would continue to go up rather than the credit worthiness of the lender. What we have to do is not reward bad behavior. Some people should never have been able to buy a house and we don't want to bail them out.

On the other hand, we have to stop the spiraling down of housing prices. So we need to do something to stimulate demand and to be able to keep from prices going down artificially. Those are guarantees.

BENNER: You were saying we have to keep prices from going down. I think there are some people who would argue that home prices really should come down. And that having 69 percent home ownership rates is not good.

VELSHI: Well, I've got somebody on that table right now who I think will argue that home prices should come down. Walter, you think so, don't you?

UPDEGRAVE: There are a lot of people out there who couldn't afford homes even during this big run-up in home prices. And who're probably looking at home prices going down and thinking, maybe this is my chance to get in.

VELSHI: So Telis, we might be making that necessary adjustment as we're going along. DEMOS: I think part of the problem is that a lot of foreclosures that are happening, Andy referenced the nine percent foreclosure rate, that's largely because the bank doesn't own your mortgage anymore. A bank servicer, a mortgage servicer, which is then -- packages them into bonds and sold them to people all over the world, they're the people who own your mortgage. And you can't negotiate with them like --

VELSHI: Like with your community bank.

DEMOS: I'm sure a lot of viewers can relate to that experience of trying to call the person who owns your mortgage and finding it to just be, they have a checklist and that's it. So there is a danger in sort of overshooting the correction in the housing crisis just because the market has been so distorted by the fact that so many mortgages have been securitized and sliced and diced.

So I think there should be some help, you know the form -- people debate about the form -- there should be some help for people to be able to restructure their mortgages, to pay them off responsibly because they should be able to pay them off.

VELSHI: And maybe capitalize some of those losses that they have.

DEMOS: That's them and the banks at the same time.

WALKER: I would argue the American dream is everybody to maximize their opportunities to achieve their full potential and to make sure that the future is better for our kids and grandkids than today. That's at risk.

GERGEN: Wouldn't you say, we're going to have to readjust our sights.

WALKER: We're going to have to readjust our sights. When we come out of this, we're going to have slower growth and we're going to have to be more prudent with regard to debt and we're going to have save more if we want to sustain --

VELSHI: Slower growth could affect you in many ways including your income and it could affect how much you make and how much you save for retirement.

Coming up next, how the stock market figures in and what it means to your bottom line. What this stimulus package means to our bottom line when CNN MONEY SUMMIT continues.

(COMMERCIAL BREAK)

GARY TUCHMAN, CNN CORRESPONDENT: I'm Gary Tuchman. The CNN MONEY SUMMIT continues in a moment. First, a "360 News and Business Bulletin."

Alex Rodriguez today said he'll work to win back trust after admitting to taking steroids for three seasons. The Yankee slugger says a cousin injected the substance called "Boli" into him.

New trouble for Roland Burris: the Illinois senator flip-flopped today saying he did try to raise money for former governor Rod Blagojevich who appointed him. Senator Burris may be facing a perjury investigation back home and an ethics inquiry on Capitol Hill. And tonight in an op-ed the "Chicago Tribune" is calling for his resignation.

The bad times have hit Donald Trump. The company that operates his three Atlantic City casinos filed for bankruptcy today. Just four days ago, he resigned as chairman of the company.

And stocks tumbled on Wall Street after President Obama signed the stimulus bill into law. The Dow fell 297 points, the Nasdaq losing 63, and the S&P shed 37.

Those are the headlines. Back to the CNN MONEY SUMMIT in a moment.

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(BEGIN VIDEO CLIP)

JERRY LEWIS, (R) CALIFORNIA: Mr. Speaker, I yield $8.8 billion to the gentleman from Tennessee -- excuse me, the minute -- that's the cost of the minute I'm yielding on this bill.

(END VIDEO CLIP)

VELSHI: That Republican Congressman Jerry Lewis of California objecting to a package that he and every last one of his Republican colleagues voted against. In fact, the stimulus comes out to about $1.5 million a minute. That's still a lot of money.

And how does the stimulus help or hurt your investment? Let's go back to our panel. Ryan, what do you advise people to do?

MACK: At this point in time, we have to get back to the basics. If you're 59 years old and you're about to retire, you shouldn't have 80 percent of your money in stocks right now. You need to have a more appropriate asset allocation structure.

And I can't tell you how many calls I get from individuals who are saying, "I should have been retired, I'm 60, I'm 65 and I have so much money in my stocks. I'm taking so much risk."

We have to look at our asset allocation, be diversified, and before we think about investing in the market, if your overleveraged -- some individuals back in 2000 took out home equity lines of credit just to invest in the stock market. These are the types of risk that we have to mitigate more responsibly enough to move forward.

SERWER: I think the important thing is to realize that the money you had in October of 2007 or last summer is gone. I mean, that was la-la-land. You may lose an additional 10 to 20 percent even from here. So bring in, rein in your spending, rein in your lifestyle and readjust, reset.

VELSHI: Right. And you can do that by choice or you can be forced to do it, apparently. Walter?

UPDEGRAVE: Well, I think that we tended to look at retirement as an investment decision. How do invest my money? It's really more a saving decision. How much do I save?

It's easy to go to a calculator and you put in your savings like 7 percent of salary which is about what the average American contributes to a 401 (k). And if you put in a double digit return, it gets you this very nice nest egg by the time you retire.

Well, the double digit return may or may not happen. Probably isn't going to have to happen. So what you really have to do is adjust the saving side of the equation and recognize that you have to save more. And of course, as Ryan mentioned, the asset allocation. If you're close to retirement, you can't have all of your money in stocks. But if you're young, you can afford these ups and downs.

VELSHI: Let's listen to an iReport that we have talking about what happens to all these people. We've all talked about how much everybody has lost. Listen to this iReporter, talking about stimulus and what's in it for him.

(BEGIN VIDEO CLIP)

DOUG MONTY, IREPORTER, CLEARWATER, FLORIDA: I would like to get some tax breaks too. I've got a 401(k) loan that's been outstanding because I lost my job and I had no means to pay it off. I would like to get somebody to lobby Congress to throw in a tax break for the people with 401(k) loans that didn't get paid off when they got laid off.

I'm just one person. I can't afford a lobbying team, but I do have an iReport. We'll see how far that gets me.

(END VIDEO CLIP)

VELSHI: Well, it got him on to CNN. And that's the whole point of the exercise. We only know what our viewers are thinking when we actually can get their submissions.

But, Donna, this is a big issue. This is what many people have done. Many people have taken loans. They seemed like not the worst thing in the world to do, and then they lost their jobs. And there is that sense that why isn't somebody saving me?

ROSATO: There was a lot of phantom wealth out there. Your 401(k), which you borrowed against, went up unrealistically, well above norms, and our housing prices. So we're going to have to save more.

But stocks are not going to be down forever. And if you look at past periods, this is the worst ten-year slump we've had ever on record. But if you're coming out of a big slump like this, we've seen a minimum average annual return of 7 percent, and as much as 15 percent.

GERGEN: A lot of our conversations have been about people who are working. And for them, they do have to change their asset allocation and be very defensive. But we now have a lot of people who are retired and people who are about to retire; the front end of the baby boom population. They're the ones that are really getting slammed, along with the unemployed.

In this case, you can't save more. You're living off fixed assets. And you've seen what savings you have put aside, diminish sharply. They're just going down the tubes. So your income's gone way down.

For these people, the government cannot save every one of these people. What the government can do and must do is to jolt the economy and get it moving again, and then the markets will start to come back.

But in the meantime, there are a lot of people hurting, who are not measured in the statistics of unemployment. There are people who are just having to live very diminished lives right now, right on the edge. And for them, the more rapidly we can get this thing turned around. And that's why I think a number of us have been arguing; you've got to do more to jolt this economy. You have to get it turned around.

We cannot go through a five or ten-year slump as Japan did. That's not going to be acceptable, I think, for most Americans.

VELSHI: Ryan, you heard that iReport. You've run into this before with your clients. People have taken out loans. They've paid -- in many cases they've paid a penalty or they've had to pay the taxes and a penalty in these cases

MACK: The 401(k) was intended for retirement. And wasn't intended as a vehicle to leverage yourself. I mean, while sometimes it may be the last resort, but it should be the ultimate last resort. The first resort should be the budget. What can I squeeze additional dollars out? If I'm getting an increased tax return, increase withholding so I can get more money back on a monthly basis.

VELSHI: A lot more responsibility in all of our parts will probably help us out.

Let's look ahead and when we come back, including the opportunities for fixing a whole lot more problems that are in dire need of fixing.

This is the CNN MONEY SUMMIT.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

W.J. O'REILLY, IREPORTER, BROOKLYN, NEW YORK: For me, it had been this big abstraction -- on television, CNN, talk talking about the bailout, what we're going to do and like that; a couple of statistics here and there. But now, I'm surrounded by people who are being very, very dramatically affected by this. And I have a fear this is only the beginning.

(END VIDEO CLIP)

VELSHI: That's iReporter W.J. O'Reilly. He could be right. The president's chief of staff, Rahm Emmanuel has been quoted as saying you never want a serious crisis to go to waste.

We're back with our panel. David Gergen, what do you think he means by that? I'm reading into that that he means, you have an opportunity to change a lot of things that are broken because we're all together on the idea that there's a crisis.

GERGEN: The civil war was a transformational event as well as a crisis because Lincoln used that to free the slaves. It made a big, big difference to the way we live.

What the Obama Administration is trying to do to use this crisis in the economy as a way to change the way we approach energy and the environment, to reform healthcare, to bring big changes in education. All of these things -- they're trying to seize upon this crisis as a way to say, let's in effect catapult ourselves out of the crisis to a higher plane of living. Whether they can get there or not, that's one of the great, great dramas that under way now.

VELSHI: This is the dependence on foreign petroleum in the United States going back all the way to 1973. You can see in the 1990s, a big drop-off. But then, a steady increase all way to 2005, 2006, when we were higher than we're at today.

But now 56.9 percent of our consumption and this is still the biggest consumer in the country of foreign petroleum is here in the United States. This is a problem for us, David Walker. You have outlined other problems that we've got in terms of our foreign debt, in terms of our entitlement spending with social security and with Medicare. Is this an opportunity to deal with several of these issues?

WALKER: There's no question that it is. I hope that what Rahm Emanuel means is that we can't just focus on today; we have to take steps to create a better tomorrow. We have a number of structural challenges that existed before the recession, before the bailout. They still exist. And, in fact, they're getting worse, not better.

So I hope the president will create some type of a mechanism to be able to reform our tax system, our healthcare system, our social security system, re-baseline government because the government is over-promised and under-delivered.

SERWER: Is he going to have the political capital to do that. Will he have a template? I mean the jury is going to be out. America is watching and waiting to see if he's going to be effective in this crisis.

But I think there's a mindset already given that people understand they were having difficult times. Maybe it will ring true now and say we have to fix social security next. So maybe it will work.

VELSHI: And then we have the soaring debt problem that I want to show you. When you go back to 1979, our national debt was $826 billion and there aren't too many breaks in that line. It's been steadily growing.

Katie, I want to ask you, we talk a lot about tax, a lot of tax cuts, a lot of people complaining there weren't enough tax cuts in the stimulus. In the long term, are we in for tax cuts or are we in for increased taxes given everything that's going on?

BENNER: Let's just look at this, this way. In the long term, if you're going to spend this much money as a government, somebody has to fund it. You can't keep on cutting taxes. The way global power has been structured has always been -- for a while it has been America at the top of the pyramid.

As we continue to borrow money from other countries, how can we continue to tell other people what to do or to be number one or be on top or...

VELSHI: Because you have the same authority as telling your bank manager what to do when they control the purse strings.

BENNER: Exactly. And so not only are going to pay higher taxes, we have to sort of get ready to have the United States be the -- to play a different role in the global economy.

DEMOS: I think Katie's right that what's different about this crisis, this situation, the crisis that Rahm Emmanuel is talking about wasting is that we're in an enormous hole deficit-wise so the things that we do need to be brilliant.

VELSHI: To that point, we've been soliciting comments from our viewers on Facebook. I want to read you this one.

It comes from Michael in Michigan. "If this stimulus package fails to free up credit within the next six months, where does the Obama Administration go from there? Surely, the Democrats won't have enough capital to pursue another enormous stimulus, but that won't mean the Congress would immediately turn GOP tax cuts, so what's then?"

Walter, what then?

UPDEGRAVE: I think they ought to just focus on getting us out of the current problem that we have and then let's talk about revamping the healthcare system, that sort of thing.

The problem with government spending is once it gets in there, it's very difficult to fix. It usually starts out very small. Medicare wasn't the program it is today. It didn't soak up as much of GDP. Social security was much more modest. These things tend to get larded up with a lot more provisions, a lot more benefits. So I'd rather -- they said that the stimulus pack was supposed to be targeted, timely, and temporary. Let's keep it that way. Let's not get in to these transformative events.

VELSHI: Donna, again, something everybody said here is, we don't know whether the stock market comes back anytime soon. It will eventually. We don't know whether housing prices come back any time soon. We hope there'll be fewer jobs lost. What do we tell our viewers right now?

ROSATO: We go back to what the stimulus is. Is it going to help the people who need it the most immediately? People who are out of work, who are poor and who are retired; there's going to be an immediate benefit to folks that are into food stamps, unemployment benefits and help for that. So it's going to help to keep things from getting worse which is going to give people a psychological boost.

Longer term, it's not an immediate but remember, this is not happening in isolation. We have the stimulus bill, we have the mortgage bailout plan, we have TARP 2, we have what's happening in the auto industry. This is not the only thing happening.

VELSHI: Ryan Mack, people have to just buy a magazine to hear Donna's stuff. They have to pay to see you so free advice for 30 seconds to our viewers who are just trying to maybe breathing a sigh of relief. What do they do now?

MACK: Essentially right now, we need to get our budgets in order. 60 percent of us are still spending more money than they earn every single month. We need to have the adequate risk and management strategies in place. We need to make sure our state plans are up to date. We need to make sure that we are eliminating our high-risk debt, credit card debt, IRS loans and collections.

We have to make sure that we're adequately funding our emergency funds, six -- actually nine to twelve months of living expenses in a high-yield savings account. We have to make sure we put enough money to maximize the use of the IRAs, and making sure we're invest responsibly before we go forward.

VELSHI: All right. It looks like there's hope out here. The expectation that you have all created today is that we're moving in some direction, but don't expect any quick fixes.

We will continue to bring the breakdowns of what's going on in this stimulus and in this government to you. Thank you very much for joining us.

Thanks to our CNN MONEY SUMMIT panel.

Our nation's economic issues are not going away anytime soon so we will continue to give you an honest look at the problems and Washington's plan to fix them and our experts' take on what those plans will actually like and which ones will work.

For more on the CNN MONEY SUMMIT, check out cnnmoney.com and ac360.com. Thanks for joining us, I'm Ali Velshi.