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Are the Big Banks' Earnings a Reason to Celebrate or For Outrage?; Has President Obama Turned the Page on the Economy?; How to Make a Business With Your Buddy Work
Aired April 18, 2009 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALI VELSHI, CNN HOST: Big news from some of the big banks. Are their earnings a reason to celebrate or reason for outrage? Are you any closer to getting your money back?
Welcome to YOUR MONEY. I'm Ali Velshi.
CHRISTINE ROMANS, CNN HOST: I'm Christine Romans. Why President Obama's economic speech this week was ground breaking. Even though, there was no real new news and no new initiatives, has he turned the page though on the economy?
VELSHI: I keep hearing about these green chutes, we are going to tell you what green chutes are and why you should care. And budding up for business, if you're out of a job and you are looking for the next thing that you are going to do, you may just need to look to your friends. Many of us have thought about it, why now? Might be the time to act on it and how to make a business with your buddy work.
ROMANS: Then, the unlikely star that lifted the mood in Britain and struck a cored in the U.S. How an unemployed middle-aged woman gave us something to smile about even as the economy limps along. Richard Quest weighs in.
VELSHI: I knew we would talk about this. But -- hey, Citigroup.
ROMANS: You don't want to talk about it?
VELSHI: Made so much what? I can't figure it out. The banks have been reporting their earnings all week. Earnings, by the way, are a report card on how business is doing.
VELSHI: And what happened?
ROMANS: Citi had a profit and a loss. Citi had a quarter with a big astric on it. We are going to tell you about it.
VELSHI: We're going to tell you about the banks and how this can affect how you can make money in this economy.
ROMANS: But first when the White House bills the remarks in the economy as a major speech but then say oh there will be no new plans or initiatives, but we reporters tend to get a little skeptical about it. But you know President Barack Obama's speech turned out to be quite ...
VELSHI: It was no big deal. From criticizing Wall Street's fast-buck mentality to challenging Washington politicos to change the way they do business. Here's what he had to say.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: When a crisis hits, there's all too often a lurch from shock to trance, with everyone responding to the tempest of the moment until the furors die down and the media coverage has moved on to something else. Instead of confronting the major challenges that will shape our future in a sustained and focused way.
(END VIDEO CLIP)
ROMANS: All right. Let's bring in political contributor and interim post of CNN's "No Bias, No Bull" Roland Martin and Peter Schiff, author of "Crash Proof."
VELSHI: "Crash Proof," how to profit from the coming economic collapse. Let's start with you, Peter. You know we've been talking about the fact that the president and others, maybe, are moving away from the shock phase of this recession into maybe adapting to what has to be done next. What's your feeling? Where are we in this recession? Are we in a place where we might be looking at -- a turnaround and things happening?
PETER SCHIFF, AUTHOR, "CRASH PROOF:" Oh, no, not at all. I think it's early on, if you would compare this to the 1930s, maybe this is 1931 or 1932 and unfortunately we're going to turn it into a depression, an inflationary depression.
Unfortunately, the president's plan is interfering with the free market's attempt to restore a sound foundation to our economy. It's interesting that Barack Obama in his own speech acknowledges that our economy was built on the phony foundation of borrowing and spending, and that we need to save more, invest more and produce more, but all of his policies are counterproductive because they're interfering with the free markets attempts to bring that change about.
ROMANS: Roland, the president is saying you have to use this time right now to build this better foundation. I mean is he doing the right thing or is he getting in the way, as Peter says, of the free market fixing it.
ROLAND MARTIN, CNN POLITICAL CONTRIBUTOR: Well first of all, I think it's laughable to use the phrase free market when we're the ones supplying the money. So trust me, it's not free. At some point the government has a certain role in this. So when it comes to homeowners and when it comes to the war, in terms of banks and when it comes to Wall Street. Look at what happened with AIG, we are the place of last resort. What's interesting here, you have the ebb and flow that's going on here and it is natural? You look at the stimulus package, you look at the bailout, and all of these things are still in the interim basis. He hasn't even reached 100 days yet, so why are we shocked that all of a sudden you see a slight up tick and some movement.
Again to me, it will go up and down, and it will go up and down until there's some kind of firm footing and he's right, you have to challenge how we are structured. I don't buy this whole nonsense that the free market, just do what they want to do. We know what that looks like. We all get screwed.
VELSHI: All right. Let's look at that, Peter, because you do actually take the view that the free market should do what it's got to do and government should step back out. That we're way too far into this thing, you've argued for months that we shouldn't put a penny into this economy.
SCHIFF: Of course not. It is the stimulus isn't the bailouts that are the problem. Bush started it and Obama's just continuing it but we need to go back to a sound foundation. You are talking about these, bank earnings out of Citi; we should have let Citi go bankrupt. We don't need to have you know these profits in the banks. Its bank earnings that were part of the problem.
VELSHI: Let me explore this with you, because you have long said that the banks can go bankrupt and the auto companies can go bankrupt, the issue that worries me and you and I have talked about this, we have an unemployment rate of 8.5 percent and we have more than 6 million people actively collecting unemployment insurance and probably another 7 or 8 million people who have run out of unemployment, insurance benefits.
We're up to 15 million people officially unemployed. If we let these companies fail we can easily cross 20 million people and go up above 10 percent unemployment, are you concerned about that?
SCHIFF: If we keep them in business we're going to have more unemployment and if we let them fail we will free up that capital to some place more productive so that we can re-employ these people profitable actually making products with out a problem and doing something productive for society. If we keep them entrenched in money-losing businesses we're going to have more unemployment and the unemployed people are not going to have new jobs to go into.
ROMANS: I want to bring the president back in here and one of the remarks that he made, I want all four of us to listen to it and to get your response Roland, about this. You know the president talking about looking beyond the right now it the longer term, so we are sort of arguing here about whether we're doing the right thing for this particular recession and this particular problem. He's looking much bigger and using this as a time to try to solve what he thinks are some other long-term problems.
Let's listen to how the president put it.
(BEGIN VIDEO CLIP)
OBAMA: 2009 will continue to be a difficult year for America's economy. And obviously, most difficult for those who have lost their jobs. The severity of this recession will cause more job loss, more foreclosures and more pain before it ends.
(END VIDEO CLIP)
ROMANS: Of course, the other sound bite that we played earlier was about the 24-hour news cycle and with the media furor dies down we have some big issues to solve so in the near-term he seems to be tempering the glimmers of hope, we have glimmers of hope when we have a lot of this work to do. Is he striking the right tone, Roland?
MARTIN: Well, yeah, because look, you can't sit here and say we have a president who is saying things are wonderful and things are great. Remember, President George W. Bush for a whole year, it's not a recession. It's not a recession, but we knew it was a recession. It was confirmed in December '08 and he said well it really started in December of '07. You have to have a president who is honest and who is open and saying look, here's the reality of where we are.
So I think absolutely in terms of the tone he is setting, but also saying look these things are going to continue, foreclosures and a lot of that is going away with these companies and we're seeing an up tick right now when it comes to that but you're also seeing an opportunity for people who also have funds who do want to buy homes and so again, that's where the ebb and flow comes in.
SCHIFF: All right. Remember, the recession, this is part of the cure. We need the recession. It's painful, but it is necessary. Unfortunately, Barack Obama is saying one thing and doing the other. He is trying to artificially stimulate the economy and he's trying to get consumers to spend more when they should be spending less. He's leading us deeper into debt. He is piling on trillions of dollars of deficit spending which is going to undermine our future.
VELSHI: But Peter, if you need to save more, and I think we all have come around with this, even if you didn't share this view a year ago, we Americans have to save more money. Who is going spend in the meantime to keep our economy going even at the low level?
SCHIFF: Nobody, spending doesn't get the economy going. Production does, saving does, that's the myth and that's the illusion. We don't want the government to undermine all the good choices that Americans are making. If Americans want to pay off their debt, we don't want the government piling public debt on top of it because they're only obligated to pay it back.
MARTIN: Peter, all these years, our economy is been based upon buy, buy, buy. We love to buy. Look, we're talking about capitalism, we love to buy. Look, I understand in terms of the people who are sitting here overspending, but you can't have a situation where, frankly, folks are not spending anything. I mean, look. You also want a job and you want us to buy your book. Save your money, don't buy Peter's book. I bet you won't like that, Peter. SCHIFF: Mine is cheap.
In order to buy, somebody has to make this stuff. The only reason we've been able to operate our phony economy is because foreigners have been making this stuff for us, but now they found out that we can't pay for the stuff. We can't pay back our debts so we have to start producing stuff just like everybody else. It's a myth. Consumption is 70 percent of GDP, but it's not 70 percent of the economy. You can't consume what you don't produce.
VELSHI: You both have a good point. We do have to spend a little bit and we do have to save more, and we have to figure what it is we need to produce to give to the rest of the world. Great to talk to both of you as always.
MARTIN: Read Peter's book, chapter by chapter.
VELSHI: That would save you some money. Roland Martin watch him at 8:00 weekdays on "No Bias, No Bull." Peter Schiff is the author of "Crash Proof, how to profit from the coming economic collapse." You should buy it but don't overspend.
SCHIFF: The collapse is here, though.
ROMANS: Don't borrow money to buy Peter's book. That would not make him happy.
All right. Here are the headlines for you, banks are doing better. Banks are doing better?
VELSHI: Citibank made a great big ...
ROMANS: A profit and a loss. Are you any where closer to getting your money back?
ROMANS: So, Ali, there I am Friday with a big old Citigroup earnings report and you know they reported a loss and they also reported a profit.
VELSHI: I'm glad it was you handling it in the morning because I was reading that report thinking, wow, what is this? I mean this a week that we have seen a lot of earnings on Wall Street, and a lot of people sort of glazed over it and you might be doing it right now, so why do I care about earnings?
Earnings matter because if you want to get rich you often have to invest in the stock market through your 401(k), your IRA or your mutual fund and whatever you want and the earnings on the report card of how these companies are doing so it is really your only time to check in on them to see how they are actually doing.
ROMANS: Some of these banks you're not only a shareholder. You owe the bank. Citibank has been sustained by three big infusions from the United States government. VELSHI: So I really don't quite understand when you see earnings from a bank, because they've had this government assistance what is actually real.
ROMANS: Are they healthy or are they not healthy? Do they need our money, or do they not need our money? Are they going to pay it back? We don't know.
VELSHI: Was it profitable or wasn't it profitable?
I don't know. This is very complicated and that's why we have other people to come and join us to help make things clearer for us. Two friends of our program, Diane Swonk is the chief economist at Mesereau Financial in Chicago. Peter Morici is with the University of Maryland School of Business. Welcome to both of you.
ROMANS: You know Diane; you were in banking for a long time. You worked at a bank you know the banking industry. Are the banks in better health, is that the bottom line? The banks are doing better?
DIANE SWONK, CHIEF ECONOMIST, MESEREAU FINANCIAL: I actually worked directly for Jamie Dimon for four years so I've been right in the middle of this, so you do make money in banking when you have the kind of spreads you've got out there, but the Wells Fargo's of the world, we're going to see their actual earnings next week and I think they really truly are doing well.
That said, you know, given the support these banks have had, even Goldman Sachs raising the private capital to pay back the TARP Funds, they're getting more money in FDIC-guaranteed loans than they are actually getting the TARP funds. So they're still getting an awful lot of subsidy from the U.S. government so to call them healthy at this stage of the game, is more than premature.
ROMANS: You worked for Jamie Dimon; of course he is the CEO right now of JPMorgan Chase. He so famously this week said, he called it what?
VELSHI: He said having TARP money is like a Scarlet letter.
ROMANS: He doesn't want this money. He doesn't want this money and of course they haven't given it back yet because it has to be an orderly process to give this money back. Do you think he's right to give the money back and they can or would that be good or would you then be able to zero in on other banks that aren't giving it back and then the market starts to take them down?
SWONK: There's a real rub. Initially they told these bankers here everybody take it so we don't know which banks, which everyone does no know which banks are doing so poorly so we don't have runs on banks.
VELSHI: Peter, what do think of the whole situation?
PETER MORICI, UNIVERSITY OF MARYLAND SCHOOL OF BUSINESS: Well I think it's a bit of a game that Jamie Dimon's playing, but if I were in his shoes I'd play the game as well. They have people thinking if they give the TARP money back, then they are not taking public money so they can pay people what ever they like and run the banks as they please. The reality is we're still guaranteeing these banks and they're borrowing lots of money from the federal government and the Federal Reserve in other ways and that's given them big spreads to make lots of money.
VELSHI: When you say big spreads let's just clear this up, it's the oldest -- not the oldest profession in the world, but it is one of them.
ROMANS: It might be.
SWONK: I don't want to go there.
VELSHI: You have money at a certain rate and you loan it out at a higher rate and you make the money.
ROMANS: The point is that the government would dive in there, right, Peter? And make this cheap money available.
MORICI: Basically, banks borrow at three and lend at five and right now they're getting to borrow at two and lend at five. The government has opened up the spreads by giving them access to very cheap money through the FDIC and through the Federal Reserve.
Remember, Ben Bernanke is lending the banks almost a trillion dollars against questionable paper. So for Mr. Dimon to say hey, we don't have TARP money we can pay ourselves what we please again because we're not taking government money, is Mr. Dimon going to tell me he's not using any of those special facilities at the Federal Reserve?
Hardly. Once more, if these guys go off and do as they please again and get in trouble again we're going to have to bail them out again. No, let them pay off the TARP money, but let's not let them think that we should not look at how they're running these institutions because they've gotten us into a terrible mess with their business practices.
ROMANS: You know Diane, so many people look at these earnings and they are like wait, if the banks are doing a little better then did they need our money or are they doing better because they have our money? It's very difficult because it's such a hot button. People really care about what the banks are doing.
SWONK: Well, I think the important issue is we need to have banks doing better to have them eventually lend more aggressively and fill this huge gap, the shadow banking system that GMACs that didn't used to be banks were larger in mortgage lending than actual banks so we do need to see this last part of the lending market back in shape again because they're going to have to fill in an enormous gap that we have created in credit markets.
That said, they have to get healthy and they have to get profitable and, yeah, we have to help them do that because it's not in our best interest to have all these banks go down. On the flip side of it, they're getting subsidies and Peter is absolutely right.
And I think the TARP funds and all the political strings that came attached to it really tainted the idea that it really doesn't, you know, it's gotten us into more of a mess and it really illustrates how difficult it is once we start getting this deep into any business, you know, the kind that what we expect as shareholders and we're big shareholders in these banks and what we expect in terms of their response.
VELSHI: Peter listen to this quote from President Obama that he made during his speech. Take a listen.
(BEGIN VIDEO CLIP)
OBAMA: The truth is that a dollar of capital in a bank can actually result in $8 or $10 of loans to families and businesses. So that's a multiplier effect that can ultimately lead to a faster pace of economic growth.
(END VIDEO CLIP)
VELSHI: Peter, good explainer, but it does sound like the president is setting the stage for the fact that this government may need to intervene further into the banks to ensure that they're properly capitalized. How do you read what he's saying and what do you think about it?
MORICI: Well, I think that he's basically trying to justify the fact that the federal government has put capital into the banks to shore up their position and he's trying to justify all the assistance that we've provided them, but what he's not doing is a terribly good job of explaining how they got into this mess and what he's going to do to keep them from doing it again. And most major economic downturns, the long recession that began in 1876 and lasted until 1901, the great depression and now this mess, was caused by bank meltdowns and bad banking practices.
ROMANS: 1806, now you're bringing me down. Let's not talk about ...
MORICI: I'm a professor, remember.
ROMANS: Oh yes you are Peter. Peter Morici, professor, University of Maryland School of Business. You're right. Thanks so much.
Diane Swonk, chief economist of Mesereau financial, we can talk to you for hours, but unfortunately we don't have hours. Thanks you guys. Have a great weekend.
VELSHI: Procrastinators like me, listen up. The April 15th deadline is past. It is over, it is in the past. Some of us missed the deadline for filing, I did file an extension because I watched the show and that's what it said to do.
If you missed the deadline for filing, you need a plan. If you didn't file for an extension or even if you did you need a plan and you need one now and we're going give it to you.
VELSHI: All right. This is the moment in the show you have all been waiting for. We are going to talk about the Scottish-singing sensation.
ROMANS: No, we're not!
VELSHI: We're not?
ROMANS: We're talking about taxes.
VELSHI: Oh, are we going to talk about Susan Boyle later in the show?
ROMANS: We are.
VELSHI: Because everyone in America is talking about Susan Boyle.
ROMANS: She's the most famous person in the world; she's more famous than the president this week.
VELSHI: We'll talk about her later; right now we'll talk about taxes. The IRS projects that about 9.5 million taxpayers filed for an extension. I am one of them. That number does not include the people who simply missed this year's April 15th deadline altogether and those are two very different situations, filing for an extension and missing the deadline.
ROMANS: And then those people like me who will have to file them again because you got an amended 1099 the day before tax day.
VELSHI: Not a problem that I ever had. If someone sends me an amended anything I haven't found it.
ROMANS: Seriously I was making fun of you last weekend, I should have done the same thing, I should have just waited and filed for an extension and I didn't and so now I'm going back to ground zero. So if you're one of the taxpayers who still have a lot of work to do or you know someone else who failed to file, listen up, you're going to have to have a plan.
VELSHI: Our good friend Roni Deutch is a tax attorney, she is the author of the "The Tax Ladies Guide to Beating the IRS" and she is with us right now. Roni, good to have you back on the show. Let's talk about this. First of all, if you don't owe taxes you have nothing to worry about, right?
RONI DEUTCH, TAX ATTORNEY: Exactly. When you think about the 10 million people who did not file on April 15th and also failed to file an extension, it's unbelievable if the IRS owes you money. Again, as of April 2005, $1.3 billion, Ali, of unclaimed money is sitting in the hands of the IRS because people didn't file their return. VELSHI: That doesn't make any sense. In this economy that certainly doesn't make any sense. If you are getting a refund then you absolutely have to file by April 15th, and if you haven't filed an extension, now what do you do?
DEUTCH: So let's talk about it. If the IRS owes you money, don't worry about it. Get that return in as quickly as possible so you can get your money. After three years, they get to keep it. The real issue, Ali that we've got to discuss is the millions of Americans who owe the IRS and did not file a return or an extension. Here's what they need to know. Bad news. The IRS will assess up to 25 percent penalty for your failure to file. Plus, let's not forget the other penalties, failure to pay and interest. Let's do some math, if you owe $10,000.
DEUTCH: That means you'll be paying an additional $2500 to Uncle Sam because you didn't file your tax return.
VELSHI: That's the penalty part. That's crazy. All right, so now what do you do? Let's say you owe money and you don't have the money to pay for it, what do you do?
DEUTCH: Good news for people who owe the money to IRS. Please, file that tax return as soon as possible. There are outstanding programs available to everyone who actually owes the IRS, but guess what? You cannot qualify for those programs until you file that tax return with the IRS.
ROMANS: Now if you don't file a tax return with the IRS they might file a substitute one for you and it isn't necessarily in your favor.
DEUTCH: Christine, I am so glad you brought that up. It's not a good thing for the IRS to file a tax return for you. I know you may think it is because there are so many procrastinators that would love it, but guess what they do, Christine, they don't include deductions, they don't include credit and now when they file a return it looks worse for you, but good news, you can still amend the return that they filed for you, just like you're going to have to amend your tax return.
VELSHI: Let's talk about the collection process. What happens? You should negotiate with the IRS as much as possible and you've indicated that that can be more successful than many people think it would be.
DEUTCH: When you think of collection you have to think of statute of limitation, good news. Once you file your tax return, the IRS only has ten years to collect money from you, but let's face it, we have unemployment at an all-time high, we have people that have lost their homes and we have portfolios that are half the value, still, there are great programs, Ali that people can file for with the IRS.
You can do an installment agreement and you can qualify as currently not collectible and my favorite the offer and compromise program where you literally offer the IRS less money to settle your entire debt. Great programs, but again, got to get that tax return in as quickly as possible.
ROMANS: And what do you -- you can go to jail; I mean, let's be honest here, right? At what point do they step in and pursue criminal charges?
DEUTCH: Yeah, let's talk about that. If the IRS believes that you intentionally failed to file your tax return that is criminal. Our constitution says, people, you've got to file a tax return, and there's no way you want to deal with the IRS and criminal issues. They will absolutely put you in jail if they believe you're intentionally avoiding them.
VELSHI: Good point. Don't intentionally avoid them. Roni great to talk to you. You always make my not being interested in taxes; as soon as I finish talking to you I just want to get my taxes done. Roni good to talk to you. Roni Deutch, she's the author of "The Tax Lady's Guide to Beating the IRS."
ROMANS: Set your TiVo, Ali I am about to say something really dramatic and ground breaking. You were right.
VELSHI: About what?
ROMANS: About filing for an extension. You were right and I was wrong.
Your town has lost thousands of jobs. What if they're not coming back?
VELSHI: The number of people getting jobless benefits in the United States tops 6 million for the first time this week. When the economy recovers the jobless rate should go down, but that 6 million people is even deceiving because that's the number of people getting jobless benefits and there are a whole lot of people who have been unemployed for so long they are just not getting benefits.
ROMANS: Right. People who have completely dropped out of the labor market as well, who have just sort of given up.
And frankly, some jobs especially in the manufacturing sector, there's a lot of concern that some of those jobs won't come back and there's even kind of an argument from people who say well those jobs aren't coming back so let's talk about innovation and something else.
We wanted to ask someone who has been dealing with this directly, what to do when your jobs are gone. Virg Bernero is the mayor of Lansing. Welcome to the program.
VIRG BERNERO, MAYOR, LANSING, MICHIGAN: Welcome -- hello, good to be here.
VELSHI: Let's talk about this. You are the mayor of Lansing. Michigan is clearly the state with the highest unemployment rate and there have been so many jobs lost and I just want to give our viewers a sense of this, back in 1999 the unemployment rate in the state of Michigan was 3.9 percent.
It went from 3.9 percent to 7.6 percent almost ten years later in 2008. By 2009 the state of Michigan has an unemployment rate of 12.6 percent and Lansing has a higher unemployment rate than that. Tell me your situation.
BERNERO: We are challenged. It's tough, but we are not alone. We're not unlike a lot of industrial cities. I've formed a group with other mayors the Alliance for the Automotive Coalition and other manufacturing mayors. We are hurting, there is no question about it and we do not accept that manufacturing is over because we think that manufacturing is key to the economic future of this country.
Our industries were in transition and General Motors we're a GM town, proudly so, we created a the Cadillac CTS motor trend car of the year last year and we know how productive and capable our people are and the great products they can produce, but we're in a global environment and we're in a free trade environment that has been created by Wall Street and Washington.
So our people struggle to compete and to win in that global economy, and I'm afraid that it's a race to the bottom. There's something wrong, I tell you, when you can produce great products and yet still, not be quote, unquote, competitive enough to win in this global economy.
ROMANS: Mayor you have been a big critic of free trade agreement and you blame some of these free trade agreements for the situation we're in now and here we now in a global recession where around the world we're talking about not putting up barriers and not moving toward protectionism and trying to make sure that we're all in this boat together.
BERNERO: You're talking about that. You are talking about that, I'm not talking about that. If you read about the ...
ROMANS: Our leaders are talking about it and I want to know what is your reaction. Don't blame me. I'm telling you, what is your reaction when you hear leaders around the world, G-20 leaders talking about making sure that the barriers aren't put up with other people's workers when in fact you are so concerned about free trade agreements in the first place.
BERNERO: I challenge your viewers and you all to look at what's really happening. Even "The New York Times" recently reported that the countries that are doing the best are the countries that are most isolationists and most protectionists. So for all the worry that Wall Street always warns us that we're going to start a trade war, if we have fair trade, if we insist on fair trade for our workers that's going to result in some kind of a trade war and even "The New York Times" reports that the countries that are doing the best are the ones that are least connected to the global economy.
I'm not suggesting that we become completely isolationist, but what I'm suggesting is that the Korean government puts Korean workers first, the Japanese government puts Japanese workers first, and the Chinese government in their own way puts their workers first. Who is putting the American worker first? I think it's time that Congress steps up to the plate and protect -- provide some degree of protection for the American way of life.
VELSHI: Let me ask you this question. Explain to our viewers how free trade has caused the demise of General Motors or Chrysler. Why is free trade the problem there?
BERNERO: I'd be delighted to. With every trade agreement, you don't have to believe me. You can Google this and you can research it. Every trade agreement that's been passed after it passes it's resulted in more unemployment and when China was admitted to the WTO, the World Trade Organization and given most favored nation trading status with this country, our trade deficit went up.
VELSHI: With the cars, why Toyota sells more cars and why Nissan sells more cars and why Honda sells more cars.
BERNERO: I would be happy to tell you. One is that we have a hard time competing because their governments stand behind their companies. One way, for example, I've been to the Hyundai plant in Korea, they're wonderful people and the government provides health care. When we get into talking about the government providing health care here we talk about oh, its socialized medicine and it's terrible. I got news for you the people we're competing with, their governments pay for health care so obviously those companies have less legacy costs.
You want to -- Wall Street wants to take it out on my dad. My 84-year-old father who worked hard all his life and earned that pension. What we get is guaranteed bonuses for Wall Street because it's contractual, but let's go after my dad and his pension, his reasonable little; modest pension that he's earned and all the other retirees like him and let's go out and take it out of their hides so Wall Street can keep getting theirs.
I'm telling you the American working people have had it with the double standard and they would like a little protection. The only one that's been protected is Wall Street and Washington.
ROMANS: We are really glad to have you on and we want to have you on again. We want to explore these issues further. I mean it is incredible to talk about some of the big ...
VELSHI: Still don't know why we're not buying American cars.
ROMANS: All right. Mayor ...
BERNERO: Even Toyota is asking for help.
ROMANS: Lansing, Michigan. Thank you sir, come back again soon. VELSHI: He's a passionate defender of the situation that many of the people in Michigan, particularly in Lansing, find themselves in.
Well, how do you go from being best friends to successful business partners, we ask?
ROMANS: Just like that.
VELSHI: Christine and I have been friends for a long time and over the years, we have discussed various ideas about going into business. Many of which we look back on and don't sound as good as they sounded at the time.
ROMANS: Let's just say it's a good idea to say that we are friends and business partners here and not any of the other endeavors that we have thought about right?
VELSHI: But it is something people think about a lot. Some people think about going into business and people often think about going into business with a friend and that's an area that can be fraught with difficulties if you don't do it the right way.
ROMANS: OK, so we have a couple of best pals who are co founders of Noel Elaine Media and co-authors of "You Buy the Peanut Butter, I'll get the Bread." Renee Warren and Kirsten Poe Hill. They join us now to talk about being best friends and starting a business, how to make it work. It's like being married I would think. Same kind of risk tolerance.
VELSHI: What do you guys find? How has the experience been? It's been 15 years?
RENEE WARREN, ENTREPRENEUR: Fifteen years. It's been a fabulous 15 years because we've been friends and we've also been business partners. So when you go on the business trips, and after the business trip ends it's like hanging out with your best friend.
VELSHI: When Christine was saying it is sort of like being married, we know that is where problems come in. If you treat money or debt or things like that differently, do you, Renee, have some pre- established way of dealing with things that are conflicts or do you deal with everything as it comes along?
WARREN: We deal with everything as it comes along, but there are some basic principles that we think about. For our business, Kristen manages some accounts and I manage some accounts. So if she is the lead on the account I will take her lead. If it's something that we're both working on I have a stand that I say, let me sleep on it, we sleep on it, we get up in the morning and we weigh the options and we decided to be partners because I value her opinions, her talents and her skills and then we just resolve it that way.
ROMANS: Kirsten the book is called "The Absolutely True Adventures of Best Friends in Business." Give me an example of an adventure that you guys have had over the past 15 years that has maybe has allowed you to grow as business people grow the business.
KIRSTEN POE HILL, CO-AUTHOR: One adventure really starts with our title. When we started the business, everything initially seemed wonderful and we were able to leave our jobs and we had had a large client who was able to give us the support that we needed. Soon the client left and he was more than 90 percent of the business and we were stranded with no money and we were in the store and we couldn't afford lunch.
I looked at Renee, I think we have jelly in the office and you buy the peanut butter, I will get the bread and together we can make sandwiches and no one would know the difference, we shipped our employees out of the office and we ate sandwiches and no would know that we were starving and absolutely broke and we had to start all over again from that.
VELSHI: People had to have you all of the time, because I think in this economy so many businesses are borne out of a difficult economy and out of a recession, so people who are thinking about this must say to you is it a good idea? If I'm thinking of starting a business with a friend, if Christine and I just love working together and wanted to start a business, do we risk our friendship by doing that?
WARREN: Well, I think that you have to think about some things. You have to ask yourself a question, can I work with this person? So just like a job interview. You have to interview your partner and say do we have the same work ethics? Do we have the same financial plans? What are our goals? You have to ask those hard questions before going into business because you can ruin a great friendship. When you're in business you have to have friend time and you have to have business time.
VELSHI: Great story.
Kirsten Poe Hill and Renee Warren from Noel Elaine Media. "You buy the Peanut Butter, I'll get the Bread." Good luck, we wish you the best for the next 15 years.
Christine, I don't know if we have the same financial plan. We can probably get past that. The bigger issue is we should spend a great deal of time talking about Susan Boyle.
ROMANS: Look, I'm telling you, we're going to talk a little bit about Susan Boyle and it's not going to be what you think we're going to be talking about.
VELSHI: All right. We'll be friends at the end?
ROMANS: We will be friends. I'm going to convince you why this is important.
It could turn out to be the biggest business story of the year, a massive collapse in commercial real estate, why that could be big trouble for the U.S. economy and for you.
VELSHI: The second largest operator of malls in the United States has filed for bankruptcy this week.
ROMANS: Could commercial real estate be the next shoe to drop in this economy? Why does it matter to you? Ali, a lot of people have been telling me this. They're worried about credit card defaults and commercial real estate.
VELSHI: Those are the two things that are out there that people don't understand and what effect it will have on the economy. We have just the right person to talk about it in our view from the top. Don Peebles is one of the country's most successful real estate developers. He's the chairman and CEO of Peebles Corporation, and he is the author of the new book "The Peebles Path to Real Estate." Well I will make money in any market.
ROMANS: OK, Don I'm so glad you are here, because I've been talking this morning to a lot of analysts trying to get a sense of what the commercial real estate market is looking like in terms of all these loans for commercial projects that are going to get more expensive as the loans roll into the next time they have to refinance those loans and at the same time that you're seeing mall traffic decline and you're seeing the retail environment quite weak because of the recession.
What is the overall picture you are seeing for commercial real estate and could it be something dangerous for the overall economy?
DON PEEBLES, CEO, THE PEEBLES CORP: Well, yeah. I think actually, commercial real estate is the next bomb to explode in the financial sector, I believe, right now and the commercial market is like a night hair that you just can't wake up from right now. What we have here between 2009 and 2011, $700 billion of debt on commercial properties are mature. $250 billion alone this year and there are no banks and no lenders out there to refinance those loans with and many of those properties were bought at the peak of the market and so they would never appraise out and qualify for a current mortgage.
VELSHI: So Don very much like the subprime mortgage crisis on residents, if you need to refinance your house is worth a lot less than it was and nobody is going to refinance it and there is less money out there to actually do that refinancing. What effect is that going to have on the rest of us? We have learned how other credit problems affect every day Americans and what's the potential real estate collapse and commercial real estate means to our viewers?
PEEBLES: Actually that's the bright spot here if there is a bright spot or silver lining. Commercial real estate declines in value and a commercial real estate crisis is not going to have a devastating effect on the average person because if an office building's rent drops 25 to 30 percent they still need the employees in these buildings to service them. So we are not going to see any major job loss as a result of that.
We'll see more financial sector jobs like what we're seeing in New York. For example, the John Hancock Tower in Boston sold at auction two months ago for $660 million which is a decline of 50 percent from the sales price of $1.2 billion three years ago, but no one is going to loose their jobs other than the people who actually made the bad decision to buy it in the first place. So I don't see Americans suffering as much from the explosion of this commercial market bubble exploding.
ROMANS: Don, but I can't tell you, you said it's like a bomb waiting to go off and a very -- there's a lot of concern among people watching the banks and who are watching the financial sector because that bomb might really hurt the financial sector and then somehow it could trickle down to you and I.
You make a great, great analogy here of how real estate is like a 12-hour clock. Walk us through that a little bit. I think it really illustrates very well where we are right now.
PEEBLES: Real estate is a simple, fundamental business. You buy when fewer people are buying and you sell when fewer people are selling, and you make a lot of money. So if you look at real estate as a 12-hour clock and 12 noon being the peak then so between 12:00 and 3:00, you want to be a student of the industry and between 3:00 and 4:00 you want to be an observer and a researcher and starting at 4:30 you want to be a buyer and you want to buy all of the way up until 9:30 and then you become a seller and you start selling at 10:30 or 11 and you sell all of the way until 12:00 and if you follow that process you do very, well.
VELSHI: That's interesting. Which is great because it means you don't have to wait for it to be 9:00, if it is 4:30 there is a whole range of space in which you can buy, because that is what people are worried about. Right? When is this housing market going to bottom? Some people say it could be 2010 or it could be the beginning of 2011. You think we are where on this clock right now?
PEEBLES: We are somewhere around 4:30 nationally. I think in New York City for example we are at about 3:00. I think New York City has a ways to go. Because if you look at New York real estate right now sales volume is down 60 percent. Values of co-ops are down 25 percent that's just this first quarter alone. They are 350 apartments and town houses on the market for $10 million or more. That's a-year inventory and that will grow. Miami and Las Vegas, the markets bottomed out. Many, many foreclosures and values are down well over 50 percent and that's a buying opportunity.
ROMANS: Don Peebles, CEO of the Peebles Corporation. Sir please come back because we both learned a lot today. Thank you so much.
VELSHI: What a great idea.
ROMANS: And also the warning about commercial real estate, I think a lot of people have not, they feel like the worst is behind us.
VELSHI: Well, listen forget the Somali pirates. There is a whole new piracy story going on and one that can affect on music and on movies and on the games that you use on your computer. (COMMERCIAL BREAK)
VELSHI: All right. It's been one of those crazy weeks and somebody who has been on top of this all the time is Richard Quest, he is the host of "QUEST MEANS BUSINESS." He joins us now from London. Richard good to have you with us.
RICHARD QUEST, HOST, "QUEST MEANS BUSINESS:" Ali and Christine, now the question is, we are about to open up that hornet's nest. We are going to let loose a can of worms to completely mix my metaphors. Internet piracy on Friday in Sweden, four people who ran the Pirate Bay File-sharing system they were jailed for one year by a Swedish court and they are appealing. They won't actually be locked up for sometime, but this is the first time we have seen anybody going to prison for what basically is file-sharing.
VELSHI: What are the implications sort of larger than that? I don't think most people know what's legal and what's not and what is our liability ...
QUEST: No, no. You can't throw up the old smoke screen like that and try to pretend. You are not that far off. It's as clear as anything. It is not permitted to basically breech out of the people's copyright. What were these people doing with Pirate Bay and others is doing that. We have seen this before. You and I are old enough to remember to have covered. There is nothing new about this. It's a different wrinkle in the same story.
ROMANS: Car scrapping schemes. This inceptives to get you to trade your old car and buy a new fuel-efficient model and try to jump- start the car market?
QUEST: It's very naked and it is obvious and it seems to be working in Germany. Several thousand Euro and you get rid of your car that is seven or nine years old. They will give you a tax credit against a new car. The key point in the German scheme is that you only get the money when your car has been scrapped. What they don't want people to be doing is taking cars in and getting the money and the car gets sold out the backdoor in the secondhand market.
It has also been introduced a version of it in France, Italy and Britain. They will introduce something similar when the budget is next week. Guess what. It works. It seems to have actually increased car sales in those countries where it's been introduced. That might be reducing pent up demand for the future, but if you have a car company about to go under, you will do anything to ship cars now.
VELSHI: Very interesting. Now listen there is a topic that has been dominating the airwaves not just in Great Britain, but around the country. I was hoping to avoid it, but it came to unavoidable about the Scottish sensation, this woman named Susan Boyle. What do you make of this? Tell us who she is.
QUEST: This is the woman who appeared on a British talent show and because of the way, frankly, she was the epitome of the opposite of what they like. She has a voice that angels would love and she defies any form of description and she probably going to win the contest.
VELSHI: Remarkable, isn't it? Simon was even nice to her.
ROMANS: I wept. I was weeping.
QUEST: Why? Why?
ROMANS: This entire recession, I have cried for happiness only once and it was when I heard her. And I don't know what it was, it was just the human spirit and a human God-given or natural born talent over came all the pessimism about the ailing economy.
VELSHI: My goodness.
ROMANS: I'm just saying.
QUEST: It's the oldest story in the book. It's the underdog that made good. The little engine that could or in her case, the large lady that could sing. It's just because she refuses to be malleable. I guarantee this. This is a bolt out of the blue. She will do extremely well. They say they are not going to make her up to be a Simon Cowellet (ph), but I guarantee you she has a lovely voice. I agree with you on one thing only Christine, talent.
ROMANS: She is very talented.
VELSHI: Richard, good to see you. Christine said that she wept as if you cry while tweeting. Richard Quest, if you want to follow him and his tweets are very entertaining.
QUEST: Listen, I can tell you one thing, the biggest numbers of tweets I have had this week are on this piracy issue. People are absolutely because there is an entire generation guys, younger than us. They believe it's OK to steal other people's property.
VELSHI: Good discussion. Richard at Richard Quest if you want to follow him on twitter, Richard, always good to see you. You can follow him on CNN International on "QUEST MEANS BUSINESS."
ROMANS: Richard, there is a whole generation of people younger than we are. Thank you, Richard for that what a wonderful thing to think of.
VELSHI: Well, thank you for joining us. Make sure you join us every week for YOUR MONEY, Saturday's at 1:00 p.m. Eastern and Sunday's at 3:00 unless you are busy watching Susan Boyle.
ROMANS: You can listen to her. You can also go 24-7 to CNNMONEY.com. Have a great weekend. Can you sing it?
VELSHI: No. I can't sing.