tv Your Money CNN May 27, 2012 12:00pm-1:00pm PDT
an historic ipo turned into a wall street debacle and a legal mess over just the course of a week. welcome to "your money." i'm ali velshi. problems dogged facebook's stock debut from the start. on the nasdaq, orders weren't getting built. they later admitted to a technical error that delayed order confirmations for hours. the ripple effect meant that some brokerages were still confirming orders and the prices paid for the stock days later. so why are we still talking about this? because of new allegations that
lead analysts at morgan stanley, the main underwriter for the facebook ipo, received privileged information about the company, information that they didn't share with retail investors. finra, the financial industry regulation authority, regulatory authority, the u.s. senate banking committee, and the commonwealth of massachusetts have all announced probes into the matter, and that was quickly followed by a lawsuit filed by some investors against facebook and its ceo, mark zuckerberg, alleging that both withheld material information from investors during the ipo process. now, specifically, they're talking about forecasts that revenue would be lower in 2012. facebook tells cnn, by the way, that the lawsuit is without merit. ron gefner is a former s.e.c. investment attorney. henry blodgett is the ceo of business insider, a website. back in 2003, henry handled a civil charge with the s.e.c., banned from the securities industry.
he's a good friend of our show. and i say this because it's relevant to our discussion. you probably know more about this now than most people do. >> unfortunately. >> if no laws were broken and no regulations were breached, and it's quite possible that that's the case, this still has some kind of a stink that makes investors think the system's stacked against them. >> that's right. this has highlighted a set of rules that really are grossly unfair to individual investors. and it was actually similar in my case. when i got in trouble, it was analysts were working very closely with bankers on ipo as. after the dot-com bust, people said, that's ludicrous, and we changed the rules. and again this is a case where we've got to change the rules. because in this situation, facebook basically preannounced a lousy quarter. the underwriter analysts found out about it and that was whispered, effectively, to big institutional investors and individuals never heard anything about it. and it had an impact on the amount the institutions were going to pay for the stock. >> ron, what's your take on this? >> it's still not clear to me.
i don't know the substance of the information that was being communicated and the times of the information with respect to the prospectus that was provided to all investors, institutional retail investors alike. that said, the entire world is stacked one way another. we look at differentrieses to compare. it's a function of being an educated consumer. >> can you -- can my viewer be enough of an educated consumer in a system like this, or by definition, am i as a retailer investor at a disadvantage to the pros? >> now if you're comparing retail and saying retail means novice, of course, in every industry, every novice is at a disadvantage against a professional. if you feel you're at a disadvantage, then work with people who are the professionals and go to the fight with the same-sized gun as your competitor. >> so, henry, your take on this is, maybe the takeaway from our viewers right now is we shouldn't have been involved in this ipo? >> i think that is the takeaway. i think this highlighted one of many, many ways that individuals are disadvantaged.
the good news is, you can buy index funds. it's exposed to u.s. equities and invested in american capitalism and you can make money, but you're not competing day to day with full-time professionals. >> but they don't have the excitement -- you know, the biggest, the most hyped ipo -- >> anybody who wants to play the markets, speculate, fine. as a form of entertainment, it's great. people go to las vegas, they know they're going to lose, but it's still fun. you can do the same thing in the stock market. my point is only that if you're actually being serious about investing for retirement, everything else, there are much, much smarter ways to do than to try to out-trade professionals. >> can the laws, can the s.e.c. and finra and these regulatory bodies ever have enough in place where my ability to invest is fair and protected? that i'm on a level playing field? >> that's a good point. first realize, laws are a dynamic world. >> exactly. we make laws because something's gone wrong. >> and in some ways, they
overregulate. >> one of the reasons why morgan stanley, the lead underwriter, didn't just come out and say to everybody, here's some specifics with respect to what facebook's revenues are going to look like, is because as a regulation, it sort of prevents them from doing that. >> exactly, and it was designed to protect individuals by not getting research in advance, and then the company didn't live up to the forecast, so people would feel swindled. so it was best of intentions, it's just law of unintended consequences, big investors had very, very important information that small investors didn't get. so again we look at the laws. >> but separately, i want to highlight one of my concerns and why i want to know the substance of what was communicated. if the analysts at morgan stanley were communicating information, that they looked at public information and analyzed in such a way that some of their clients should get the benefit of their brain power, that's one thing versus if the analysts had access to information that not everybody had access to, which is what you're suggesting. >> it's very clear that it was the second. facebook proactively reached out
to 21 analysts according to the "wall street journal" this morning to say, basically, take your numbers down. the new numbers were all very much in unison with one another. >> but you know that happens, right? the fact is, it the does happen. you're just saying it shouldn't happen? >> certainly in this case, it just should have been made available to everybody. >> how? given the current laws -- >> it should have been published. basically, look, i think facebook could have helped a lot here by instead of adding vague language to the prospectus, which i did, and people were unnerved by that. >> it basically said our revenues -- >> -- growing faster than revenues in the first quarter, but even to me, and i was a securities analysts, that's very different than second quarter's coming in weaker than we thought, the year's going to be weaker than we thought, if they just said that, then, fine, everybody gets the same information and we go from there. >> so you're suggesting that they received more granular information -- >> much clearer information. >> so the legal obligation is that the issuer of facebook is precluded from providing information inconsistent with
what's contained in the prospectus prior to the ipo. >> so do people who are suing have a case? >> it depends. this is not a tale of two cities, it's a tale of three cities. there are cases being brought against morgan stanley, facebook, and also nasdaq. and the people who are bringing cases against nasdaq, seem, i think, on its face initially to have the stronger cases. >> already, henry blodgett and ron gentner, thanks very much. coming up next, it's not just facebook's debacle that has us all scratching our heads about what exactly is going on on wall street. we also have jpmorgan's massive trading loss a few weeks ago. now, is all of this taken together enough to give president obama another chance to reform wall street? when we come back, i'll ask the woman who dared to challenge wall street, who said we need to hold accountable a financial service industry that has run wild. elizabeth warren joins us next. people with a machine.
jpmorgan chase, one of america's soundest financial institutions. a big-time wall street bank considered too big to fail. but it recently admitted to losing more than $2 billion on complicated trades involving credit default swaps. sources tell "cnn money" the losses could be as high as $7 billion. credit default swaps are like insurance, but they're not. they are more complicated and they're highly volatile. let me explain to you, investors buy insurance son some underlyig thing, let's say a loan. they give money to the bank like a premium. if that loan doesn't get paid, the bank has to give money to those investors. . but in this case, they were betting on something that didn't even exist and that neither the bank nor the investors had any underlying interest in. this is the same mess that wreaked havoc in 2008, almost bankrupting insurance giant aig. if you recall, and you probably do, the u.s. government spent
more than $180 billion to bailout aig, because it was like jpmorgan chase is today, too big to fail. while that crisis spurred some financial regulation, what happened then could entirely repeat itself today. now that jpmorgan chase's ceo jamie dimon, who has really pushed back on regulation, has egg on his face, could this be the time for president obama to get it right with respect to regulation on wall street? well, one of the best-known advocates for financial reforms joins me now. elizabeth warren was one of the main architects of consumer financial protections, through the consumer financial protection bureau. she was brought in by the obama administration to get the consumer watchdog group off the ground. she's now a democratic candidate for senate in massachusetts. elizabeth, good to see you. thanks for being with us. >> it's good to be here. >> elizabeth, four years after the financial crisis, are we or are we not better equipped to
shield the economy from risky bets that are made by institutions like j.pmorgajpmor? >> well, we are better equipped. there are some changes that have been made, like the consumer financial protection bureau, which that means we're feeding a little less risk into the system. but the real question is, are we adequately equipped? and i think what the jpmorgan chase problem shows is that, you know, there has been no change in attitude out there. the banks still want to load up on risk in order to juice their profits. and they're's still not adequat oversight of that. and as long as that situation exists, we're at risk. >> here's the question. why should i care that jpmorgan chase, a private company, with lots of money, is taking risky bets? because my mind goes back to 2008 and aig, and i think, i don't care if you do it for you and your shareholders, but at some point, it starts to risk the entire economy. am i overstating the case here?
>> no, you're not. and that's exactly the point. if these banks load up on too much risk, and as long as it all pays off, you know, then they take the profits home. but as soon as it reverses, the losses are on the rest of us. and never forget what happened in 2008. it meant that people lost their jobs, it meant that small businesses couldn't get the money they immedianeeded in loa keep their businesses afloat. it meant that people lost their pensions. it meant that this whole economy nearly went over the edge. and you know what makes this so important is that, burn me once, shame on you, burn me twice, shame on me. this is now a point where the american public says, wait a minute, we bailed you guys out. the understanding was that there was going to be a new day here. there was going to be some change. but the financial institutions, instead of saying, okay, we get it. we made a terrible mistake, thank you for bailing us out, instead, they fought back
against the regulations. they hired the biggest lobbying force ever assembled on the face of the earth. they fought those regulations, and when dodd/frank passed, they just moved to guerilla warfare. and they continued to lobby congress, they continued to lobby the regulatory agencies, to delay the implementation of the rules, to put loopholes in the implementation of the rules, to tangle the rules up, to undercut the regulators so they wouldn't have adequate funding to supervise. and that leaves us in the same old stew. >> elizabeth warren, always a pleasure to talk to you. thank you for joining us. >> always good to talk to you. coming up next, jpmorgan has a long and colorful history in washington. this week was no exception as the senate banking committee took up a debate on its debacle. but would wall street reform really prevent another financial crisis? my next guest says no. stephen moore joins us when we return.
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from elizabeth warren who's running for senate in massachusetts about why banks need to be regulated. my next guest says that regulation would not have prevented jpmorgan's hedging losses and they don't have anything to do with taxpayers anyway. stephen moore is an editorial writer with "the wall street journal." i consider him a friend, but today, i think you're crazy. how can you say that risks taken by banks don't have anything to do with the taxpayer? were you living in malta in 2009? >> ali, look, let's go back to the financial crisis in 2008 and 2009, when the banks collapsed. >> right. >> it's important for people to understand, the main reason that those banks collapsed and we saw these massive hundred billion of dollars of losses, what were the banks investing in, exactly what investors told them to invest in, mortgages and mortgage-backed securities, which turned out to be worthless. it wasn't fancy mortgage-backed
securities or derivatives -- >> well, the mortgages were the main fund. we created this much, much bigger world by having bets on bets and bets on things that were synthetic and derived and whatever. ultimately, aig, sure, if mortgages hasn't had gone sour, they wouldn't have gone, but regulation didn't know what they were betting on. >> this is my point, though. often times we have this mentality, i think you have this mentality, sometimes, that regulators have this -- >> it's a dream, not a mentality. it's a dream. i fantasize that -- >> and look, they don't. do you think that the federal regulators would have seen some of the folly in what jpmorgan was investing in? i think not. the other point i would make to what elizabeth warren was saying on the show is, look, it was two years ago that dodd/frank was signed into law. two years ago, this was supposed to be the most sweeping financial regulation of the banks and other financial institutions that we passed in 50 years, and it didn't do
anything to prevent the crisis -- >> because republicans worked very hard to water this down. elizabeth warren's running for senate today. she would have been the head of the consumer financial protection bureau, but for a bunch of republican senators who wouldn't let that happen. >> look, here's my concern with this rush to regulate. i think, and i think you would agree with this, the united states, if we're going to remain the economic superpower, we have to be the financial capital of the world. we have to be the place where the deals get done, where we have the most efficient capital markets, and here's where i disagree with you, ali. i think this massive push to impose new regulations on our financial institutions is not going to make them safer. i think what you're going to see is a lot of this the business moving to tokyo, to london, to beijing, to places that -- >> sure, regulation has got to be smart. let me ask you this. do we agree -- is this a nonpartisan issue even in america that it's dangerous to have too many, too big to fail financial institutions? >> you know, that's a very tough question. we've been struggling with that at "the wall street journal"
editorial page. because we have created this sense, in the market, that these large insurance companies, these large banks, these large brokerage firms have become too big to fail. and that, therefore, they have this kind of taxpayer safety net. now, i hate that. you know me. i hate the whole idea of bailouts. i'm not sure what the best solution to this is, because the fact is, we will bailout these institutions if they fail. >> right, that's the danger, right? the danger isn't that jpmorgan goes and makes bets with its own money. why do i care about that? i care because if they do something bad to the economy, we're going to have people in iowa who can't get home loans like last time. we'll have major companies that can't raise money and have to fire people. that's where the connection is, right? >> that's right. and there's also something special about banks. and i want to make this point. look, the reason we care about banks as opposed to insurance companies and brokerage firms is that banks also have deposit insurance, right? that the taxpayers stand behind that. so you could make the case that there should be special regulations on the way banks
invest, because they have that special protection of fdic insurance. i don't see that necessary for other kinds of financial institutions. so maybe what we need to do is separate out the banks from these other kind of financial institutions. >> let's go to someplace where we agree. i have this fantasy that regulators should be able to regulate what aig did and what jpmorgan did. my fantasy that the regulator is somebody who's in that achieve investment office in london, i don't know why this stuff always happens in london, looking over the books with them, as a partner, not as an outside eye, but somebody who says, what would happen if this didn't go your way? what would happen if this bet you made went the wrong way, and we'll be able to say, huh, that is dangerous to the global economy, so can we do something else? in other words, i'm not asking for people to do forensic work that's smarter than the smartest people in finance, but is there not some way that you can actually have regulation that's effective that way? >> you can have much more -- the one area that i would agree with, with elizabeth warren, is i think we do need more transparency in these traits. here's an interesting point i
would challenge you on, ali. if you look at what jpmorgan was losing money on, those were hedge fund bets. and what hedging is, was hedging against risk. in other words, they were trying to reduce their risks with these hedge bets. let me ask you this question, ali. how many people in the united states congress do you think understand what a hedge fund is, what a derivative is, what a credit default swap is? so you're asking these members of congress who have no knowledge of these markets to be regulating them. it's another reason i'm skeptical that the brains in washington are going to be able to avoid these kinds of financial catastrophes that we saw in 2008. >> i share a lot of your views on that. i still don't know that's a reason not to do it. it's a good discussion, and you're always up for it, even though you're a little dose of crazy. stephen, always, always a pleasure. stephen moore is an editorial writer and a great thinker with "the wall street journal." uh-oh! another election about plumbers.
>> your job as president is to promote the common good. that doesn't mean the private equity guys are bad guys. they're not. but that no more qualifies you to be president than being a plumber. >> he didn't say plumber, did he? is governor romney's time at bain capital, a private equity firm, relevant to what type of president he would be? ordinary sunblock drips and whitens. neutrogena® wet skin cuts through water. forms a broad spectrum barrier for full strength sun protection. wet skin. neutrogena®. the key is to have a good strategy. the same goes for my retirement. with the plan my financial advisor and i put together, a quick check and i know my retirement is on course. [ male announcer ] with wells fargo advisor's envision plan, you always know where you stand. in fact, 93 percent of envision plan holders say they will retire on their own terms. get started on the plan you need today --
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it's an easy way to start a quote. watch this -- flo, can i see your license? no. well, all right. thanks. okay, here we go. whoa! no one said "cheese." progressive mobile -- insurance has never been easier. get a free quote today. call it capitalism on trial, again? mitt romney under attack, again, from president obama and others. at least this time it's the democrats attacking him. who question the wealth that he gained as a successful businessman leading the private equity firm, bain capital. you have seen the headlines, but before we can figure out what this all means, we need the answer to a very simple question, what exactly is private equity? christine romans is the host of "your bottom line". she joins me now to answer that question. christine? >> ali, think of private equity like this, it's rich in big
investors like pension funds, university endowments, wealthy people pooling their money together to invest in anything that can make them a profit. often they zero in on failing companies. they buy them, take them apart, sometimes they own them for a while and grow them. governor romney points to his time at bain capital as to the reason why he is the man to lead the nation. >> in the business i had, we invested in over 100 different bu businesses, and net, net, taking out the ones where we lost jobs and those that we added, those businesses have now added over 100,000 jobs. >> romney's claims are based on investments he made in staples, sports authority, dominos and other household names as well. these are their success stories. romney's counting jobs created even after bain was out of the picture, after it sold the company to someone else and it continued to grow. but it's hard to know exactly how many jobs bain created or lost in those private equity
investments fr investment. once the company's no longer publicly listed, the books are closed. of course, the president sees it quite differently, as this obama campaign ad shows. >> a paying job that you can support and raise a family on is hugely important. >> that stopped with the sale of the plant to bain capital. >> i thought that i was going to retire from there. i had about 2 1/2 years to go. i was suddenly 60 years old. i had no health care. >> well, the bottom line, the primary mission of private equity firms like bain is to create profits, not jobs. and the idea is after you create profit, jobs come later. >> so is it fair for governor romney to cite his time at bain capital as an example of his ability to create jobs? i'm not discussing the validity of private equity, whether you like it or not, we're now discussing whether his time as bain capital qualifies him or
somehow makes him more competitive in his race for the presidency. someone who should know is ed connor. he's a former managing director at bain capital. he's the author of the book, n "unintended consequences: why everything you've been told about the economy is wrong." ed, welcome to the show. you are not just a defender of the free market, you are a supporter of mitt romney, which is fair enough. and even though it was republicans originally attacking mitt romney's record at bain during the primary campaign, it's now switched. but let's remind everybody of what it sounded like back then. >> there is a real difference between a venture capitalist and a vulture capitalist. and venture capitalists are good. they go in, they inject their capital, they create jobs. bain capital, on the other hand, it appears to me, were vulture capitalists all too often. >> i was surprised when that happened. i was a little bit shocked. i'm less shocked that democrats are taking aim at mitt romney. i was quite amazed that it was
republicans back then. bottom line, bottom line, forget whether we like or don't like private equity, does it prepare mitt romney to create jobs, which is the number one issue that americans have? >> well, i think so. i think absolutely it does. i think business executives are a critical part of our economy and are powering the growth. the u.s. economy has been much more successful than japan. europe and japan have grown half as fast in their employment growth relative to their base. i can't think of another job that would be more qualified than that. >> would it make you cringe, though, that all the scrutiny came on to mitt romney about how many jobs are created at bain. it's a tough one to get your head around, how many jobs were created or weren't created. 100,000, does that number mean anything to you? >> i think that's a reasonable estimate. mitt was there at a time when they were venture capitalists, a more growth oriented, but there's a small minority of the businesses that weren't successful. bain invested in over 350 businesses over the course of
its tithe. i think the average growth was rate 2, 2 1/2 times the s&p 500. these ads cherry-pick off the most extreme examples. but is everything going to be successful? no, of course not. >> do you think enough people realize, christine named all those companies that bain was involved. do you think a lot of people realize they may be working for a company that's alive or exist or growing because of bain capital? >>ic a lot of people know that bain was involved. >> so they are less likely to think that venture capital and private equity is vulture capital? >> it depends on the situation. if they're working in a steel meal at a time where 50% of the steel capacity is gone and bain has to make tough decisions to make the company profitable -- >> you're not going to like brain or private equity. >> or business either. these ads try to pretend that private equity is doing something different than what businesses are doing in general. and these are really attacks on business and they're really trying to pit employees against
employers and they do this by saying that bain does nothing more than cut costs and flip companies which is laughable. >> rowland martin, president obama has 19 straight months of job gains he can run on. why is he talking about bain? >> because he understands that in this climate, when you talk about wall street, when you talk about executives in term of hedge funds and private equity companies, how it resonates with the american people. but here's something that i think that you mention, ali. you said, should we measure governor romney based upon bain? here's the real deal. we are not electing somebody to be the head of a private equity company. we are looking to him to potentially be the president of the united states. so if you actually want to measure apples to apples, oranges to oranges, you measure, how did he perform as governor
of massachusetts? that's the real key? because on one hand, republicans are critical of president obama for the government investment in solyndra. you could call that private equity if you want to, investing in a company, but the real deal is when you're the president, you're not running it like a private equity company. so i would say his role there plays a role, the experience, but also, being president is dealing with commander in chief, is dealing with housing, is dealing with a wide variety of issues beyond just what did you do, running a company in terms of being able to fund start-ups. >> it is a little weird to attack him for being the head of bain. i mean, i don't understand how that gives him less qualifications. >> actually, it's not actually, it's not. >> i'd also say, don't forget, he not only -- >> here's the deal -- you're making a political argument. and remember, when we talk about -- whenever a politician talks about jobs, they're really talking about voters.
and so what the obama campaign is doing is saying, you had a negative impact on real people, so the reason you're hearing these stories is because they're trying to allow these stories to resonate among people who are unemployed, who have lost their jobs for a variety of reasons. that's why, that's the real reason why you see these kind of attacks, because they're trying to tie him to job losses, when he was head of bain, in terms of cutting companies to the people out there who are hurti ining a saying, who's looking out for me? >> see, i think this is all about how business is bad for employees. despite the fact that the u.s. economy put 40 million jobs to work, we put -- we brought 20 million immigrants into the country, provided them with jobs, educated their children, put tens of millions of people to work offshore. >> but it's such an unsuccessful argument. unfortunately, i don't know if it's mitt romney having trouble with it or just a tough argument to make that business is your friend after the last four years
we've seen. >> precisely. >> sure, we're in a recession, but i don't think you can blame that on business. come on! >> you're dealing -- you're dealing with a economy right now, also where voters are saying, wait a minute, the government bailed out large banks, who didn't turn around and loaned that money in terms of credit lines. they're sitting on cash reserves, and we're still hurting. i'm just trying to make it clear, the political argument, you're touching on the emotional core of voters. that's what this is all about. >> all right, guys, good conversation. thanks so much for joining us. even connort, the author of "unintended consequences. coming up next, mitt romney has faced a barrage of attacks on his business record with president obama trying to portray him as a job-cutting corporate radider. forget the noise, i'll tell you what you really need to look at
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question, it was 1980. that question is one that voters will be asking themselves on election day this year in november. we know this election is about the economy. but what are the most important economic issues to voters and who wins on the issue that voters claim really matter? gallup asked just that question and i want to take you through the results. the higher up on the board an issue is, the more the voters care about it. the issue where president obama holds the advantage are naturally further on the left. how far on the left they are is a sense of how much the president leads mitt romney by on those issues. issues where mitt romney leads are on the right of the screen. for example, president obama's widest margin of victory over romney is on the issue of who would improve living standards for the poorest of americans. 69% of americans think this is a very, very important issue and 62% of them think obama would do a better job than romney. right there is just one example. the problem with that is that it
finished eighth on the list of the top ten economic issues. let's talk about the ones that mattered most. all right. number one on the list, health care. 84% of americans think this is a very or extremely important issue and by a good margin, president obama beats mitt romney on this topic, okay? let's take a look at one that mitt romney does very well on right over here, and that is the federal budget and deficit. 82% of americans, that's a good number, remember that, that's key, 82% of americans think this is an extremely or very important issue and look at the margin that romney has over obama on this. 54% think romney would do a better job than bobama. but listen, the number one issue in this country, say it with me, because you've heard me say it many, many times, unemployment. let's take a look at this. it is right here. unemployment is an extremely or very important issue to 82% of the population. and by a small margin, by a small margin, americans polled
think that barack obama does a better job creating jobs than mitt romney is going to. it's not much of an advantage for the president, but it is crucial. and as a result of that, if that trend continues, if we continue to create jobs in this country, if by election day, as projected, all of the jobs lost under president obama will have been recovered, that is probably going to send him back to the white house. will cain, tell me why i'm wrong. >> you're wrong for many reasons. not only are you wrong, but i think the poll takers are wrong. i don't think they even believe the results themselves. i'll start by asking you one simple question. is unemployment the appropriate scoreboard, is it the political scoreboard for how the economy is? >> i don't think it is. i think job creation is. if you think you have a chance of getting a better wage, you spend money, and when you spend money, that creates demand, and demand means more jobs are out there and all your problems seem a lot smaller.
>> we agree it's not the scoreboard for how the economy is doing. >> but it's a barometer of how you feel about it. >> it's a barometer of something. 92% of americans are working right now, so why do they care so much about unemployment? >> that's not true. of the working population, 8% are unemployed. there are a much smaller number of americans. >> that's fair enough, talking about workforce participation, who's looking for a job. but i think americans have substituted the unemployment number for their direction of how the economy is going. and we have another indicator on that chart that you just showed that shows economic growth. and mitt romney has a big lead on economic growth, plus ten points. voters very much favor mitt romney for making the economy grow. >> so here's the thing. mitt romney has got to find something that connects with the voters, right? he's got some strengths. based on that poll, like you said, economic growth. he outranks the president there. mitt romney's getting 52% to president obama's 42%. how do you translate that into an emotional campaign? that's what he has to do.
president obama gets out there and does the ronald reagan, i'm going to make your life better. what does romney do? >> i think i reject the premise. he doesn't have to go out there and make this big emotional appeal to connect to voters. in november, this is a referendum on barack obama and how people feel about how he's been as a steward of the economy. that's what i think this has to be about, and i think mitt romney thinks that as well. he's sitting back, he's letting the bain conversation take place, he's letting the capitalism on trial conversation take place. and i think that's the right move. let barack obama make those mistakes, which i think they are mistakes. >> here's the one thing that i think would trump both of our arguments. unemployment and debt and deficit come second to health care, according to this -- >> everything under health care -- >> and obama wins on that one. >> everything under health care is economic in nature. economic growth, mitt romney is the winner in most of those. how health care plays will be huge. right now barack obama's solution for that problem we point isn't very popular with americans. >> it's a game in predicting election dshs.
>> it's what we do. >> just to make it interesting for you. coming up next, has the housing market finally overcome the burden of the bubble? and later, one of the best days in the ford family history as hthey get back a piece of their heritage. if you are one of the millions of men who have used androgel 1%, there's big news. presenting androgel 1.62%. both are used to treat men with low testosterone.
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looks like a bowling ball. yeah. oh! agents, say hello to the second-biggest hailstone in u.s. history. [ announcer ] we are insurance. ♪ we are farmers bum-pa-dum, bum-bum-bum-bum ♪ with signs of a remarkab insurgence in housing are here. home prices are up, existing homes. think of it as a used home, most of the market. up 10% from a year ago. home sales, up 10% from a year ago. median home sale prices, the price of which half of all homes are sold for more, half of which all homes are sold for more, up 10.1% from a year ago. and listed inventory, the number
of homes available for sale are down 20.6%. interest rates, by the way, once again setting record lows. if you have the down payment and good credit, a 30-year fixed mortgage is going to run you under 4%, about 3.87% for some of you, depending on where you're buying. joining me now is alan feldman. he says, i am full of it. mark zandi, chief economist w h with. >> i listened to you a few minutes ago and it's really about jobs. you're right. you have to have cash and a lot of it, $25,000 to $50,000 to buy the median home price. credit, which most americans don't have and a job, and job security. if you have all those, you can buy a home. most americans simply don't have that. and i think the statistics, and
they were up and down over the last few months, and i think you're being a tad optimistic, frankly. we're still 20% or so down from home prices and have a long way to go. >> mark, let's talk about the house situation. there are 3.6 million loans in foreclosure in the united states. that continues to be a problem. the hidden fact in there, rather than becoming foreclosures, many are becoming short sales. the bank settles with you and calls it quits based on what you can pay them. something the bank should have been doing years ago. it took them too long to figure this out. why would that make a difference? >> i agree this housing market isn't going to take off, but i think it's now pretty clear that the housing crash is done. home sales have improved, construction and home prices are all improving and will more or less continue to improve. we're not going to take off, but we'll do pretty well. one of the reasons we're not
going to take off is for the very number you just gave, 3.6 million loans are in foreclosure or are pretty close. that's a lot of loans to work through. that's going to put continued pressure on the housing market, particularly later this year into early next, when a lot of those loans are going to come to a distressed sale or foreclosure or short sale. so we've got to make more progress on that before we really start to take off. but, you know, adding it all, it's pretty clear the housing market is moving in the right direction. >> all right, alan, you've chastened me and i'll restate the case, perhaps the worst is behind us. home ownership, alan, in the united states is at 65.5%, the lowest rate in 16 years. but here's something interesting. let's go back to that median price, $177,000 in change. 78% of the homes sold were affordable to those who earn the nastional in this country. i would think that's also a
piece of good news, right? one of the pieces of news about home prices falling for some years is that now there's a whole bunch of people who were priced out of the market for years who now can own a home? >> it's true, it is good news, but it's still not easy to get a loan. one of our lenders, i won't mention the bank, i was talking to a senior loan officer who's been at the bank for 20 years, he's having trouble getting a mortgage from his own bank. it's just not that easy to get one. and we are at about 700,000 starts right now, but that's half, half of what it's been historically. and it's just not enough. mark's the expert on this, but we probably need 1 million or so new home units a year of the 700,000 starts, 200,000 of those were for apartment units, something that we spend a lot of time thinking about. most of the people today, when they can make that rent/buy decision, we've gone from 69 to 65.5%, but it could keep going.
and that's a million new renters and a million less homeowners. when people see a foreclosure sign or a short sale across the street from them, it spooks them. and people think three times before stepping up to the plate to buy a home today. >> that rent equation may start to drive the home owning equation. in a place like new york, for instance, where rents have become so high, because some of those renters used to be buyers and couldn't get access to the loans you're talking about. mark, why i like alan so much, he forgets he's in the real estate business. he's talking about what's really going on out there. thank you for keeping me honest on this. the fact is, we're probably there or we've reached it. it's not getting much worse. that doesn't necessarily mean it's the time to buy. but give it some serious thought. alan feldman is the ceo resource real estate and mark zandi is the chief economist with moody's analytics. all right, unlike gm and chrysler, ford did not take a government bailout. but in order to avoid bankruptcy, ford had to put its heritage on the line and now they've got it back. i'll explain next on "your
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ford has its blue oval back. on tuesday moody's investors services raised the automaker's credit rating from junk to investment grade. by the way, those are people you're looking at celebrating the return of the blue oval. ford was forced to pup its rights to the logo as collateral in 2006 when the company restructured its debt and it allowed ford to avoid bankruptcy. after that, the logo, the ability for the automaker to market itself as ford would have been up for sale. six years later the automaker has climbed out of its economic hole, thanks to years of strong profits. i spoke with executive chairman bill ford and asked him what the upgrade to the credit rating means for ford. >> what it does for us, in a practical basis, is ultimately it allows us to borrow cheaper, allow more people to own our
funds. because it's an investment grade. it's a reaffirmation by moody's. there was a pit in my stomach when he had to sign those papers and pledge those assets, because i said, you know, those aren't just, you know, cold hard assets, those are about as emotional as it can get for me, my family, and the employees of this company. but we felt it was the right thing to do. because we had a plan. we had a really good management team. and i believed all along that it would work. the only question was, did we have enough time, with the economy, would it get so bad that our plan wouldn't be able to take hold. but fortunately, our plan did take hold. and we've clawed our way back and we're in very good shape now. >> bill ford remains optimistic about ford's growth, especially in asia and the americas. you can see more of that interview on our website cnn.com/your money. thanks for joining the conversation this week on "