A Jolt For GM?

CBS

Transcript

outside of Detroit everybody thinks Detroit is dumb well they think your hideout yeah that same thing Bob Lutz vice chairman of General Motors is the man in charge of developing their new products and he says he owes Tesla and it's roadster a debt of gratitude if a small Silicon Valley startup believes that they can do a commercially viable electric car are we going to sit here as General Motors and say well a guy in California can do it but we can't that didn't sound very good yeah and so the race was on with lots overseeing the research and development of the chevy volt which is a four-door family electric so you see that it's got twin screens the Volt is not purely electric it's called a plug-in hybrid it'll drive on battery power alone for 40 miles go beyond that and a small gasoline engine kicks in to recharge the battery while you keep driving seventy-eight percent of trips in the United States are under 40 miles a day if all those people had vaults you would have seventy eight percent of Americans basically never using another drop of gasoline everything about the volte says works like a conventional car except there's no noise there's one thing we can do for people who miss the sound of the engines we sell them a CD that goes various engine sounds so you be able to pick ferrari v-12 or you know limahl Corvette you

Andy Rooney's Financial Advice

CBS

Transcript

considering how hard I work to make what I have I don't understand why I'm so dumb with money the single dumbest thing I do is invest in the stock market it's okay if you know what you're doing but I have no idea what I'm doing and I suspect I'm typical of a lot of Americans do we know how to make money but we don't know what to do once we get it I have stock in two companies that I've never even heard of I don't even know what they make probably all they make is money why in the world do I risk my hard-earned okay soft earned money investing in something about which I know so little big money is confusing of course bailouts Short Selling derivatives Fanny May Freddy Mack recently Merl Lynch agreed to sell itself to Bank of America for $50 billion what's that all about sell itself who gets the $50 billion and here's another headline us to lend AIG 85 billion doar well the US is us you and me but I don't think many of us know what AIG is I looked it up and it means American International Group what are we doing lending 85 billion dollar of our money to some company most of us never even heard of I don't even really know what $85 billion is let alone this $700 billion bailout if I had a billion could I pave my driveway paint the bedroom over the garage and replace the worn carpet on the back stairway how high would a billion dollars be if you stacked it up in a pile of $1 bills that's the kind of information I'd need to understand what $700 billion is there's probably a good case to be made for someone like me keeping his money under the mattress we turn the mattress every couple of months so at least I get to look at it once in a while while maybe I'll go to the bank tomorrow if it's still there and ask them to show me my money just to make sure they still have it right now all I have in my pocket is $17 and change does that qualify me for a bailout

Wall Street's Shadow Market

CBS

Transcript

on Friday Congress finally passed and President Bush signed into law a financial rescue package in which the taxpayers will buy up wall Street's bad Investments the numbers are staggering but they don't begin to explain the greed and incompetence that created this mess it began with a terrible bet that was magnified by Reckless borrowing complex Securities and a vast unregulated Shadow Market worth nearly $60 trillion that hid the risks until it was too late to do anything about them and it's far from being over it started out 16 months ago as a mortgage crisis then it slowly evolved into a credit crisis now it's something entirely different and much more serious what kind of a crisis is it today this is a full-blown uh Financial storm and one that comes around perhaps one every 50 or 100 years this is the real thing Jim Grant is the editor of Grant France interest rate Observer and one of the country's foremost experts on credit markets he says it didn't have to happen that This Disaster was created entirely by Wall Street itself during a time of relative prosperity and they did it by placing a trillion doll bet with mostly borrowed money that the riskiest mortgages in the country could be turned into goldplated Investments if you look at how this started with the subprime crisis it doesn't seem to be a good bet to put your money behind the idea that people with the lowest income and the poorest credit ratings are going to be able to to pay off their mortgages the idea that you could lend money to someone who couldn't pay it back is not an inherently attractive idea to the Layman right however it seemed to fly with people who are making $10 million a year with clients clamoring for safe Investments with above average return the Big Wall Street investment houses bought up millions of the least Dependable mortgages chopped them up into tiny bits and pieces and repackaged them as exotic investment Securities that hardly anyone could understand this is actually the security this is the selling document for the security so this we looked at one of them with Frank partnoy a former derivatives broker and corporate Securities attorney who now teaches law at the University of San Diego it's hundreds and hundreds of pages of of very small print with a lot of detail here think anybody ever read this Stu I doubt very many people read it these complex financial instruments were actually designed by mathematicians and physicists who used algorithms and computer models to reconstitute the unreliable loans in ways that were supposed to eliminate most of the risk obviously they turned out to be wrong why because you can't model human behavior with math how much this catastrophe had to do with the instruments that the that Wall Street created and and chose to buy the instruments themselves are at the heart of this mess they are complex in effect mortgage science projects devised by these Nobel track physicists who came to work on Wall Street for the very purpose of creating complex instruments with all manner of of of of detailed protocols and who gets paid when and how much and the complexity of the structures is at the very center of the crisis of credit today people don't know what they're made up of how they're going to behave right but it didn't stop the rating agencies like standard and pors and Moody from certifying the dodgy Securities investment grade and it didn't stop Wall Street from making billions selling them to Banks Pension funds and other institutional investors all over the world but that was just the beginning of the crisis what most people outside of Wall Street and Washington don't know is that a lot of the people who bought these risky mortgage securities also went out and bought even more more Arcane Investments That Wall Street was pedaling called credit default swaps and they've turned out to be a much bigger problem they are private and largely undisclosed contracts that mortgage investors entered into to protect themselves in case their Investments went bad part of a huge unregulated Market that's multiplied the losses they've already helped bring down three of the biggest firms on Wall Street and threaten the ones that are left but before your eyes glaze over greenberger a law professor at the University of Maryland and a former director of trading and markets for the commodi Futures Trading commission says they're much simpler than they sound what is a a credit default swap a credit default swap is a contract between two people one of whom is giving Insurance to the other that he will be paid in the event that a financial institution or a financial instrument fails so it it's an insurance contract it is an insurance contract but they've been very careful not to call it that because if it were Insurance it would be regulated so they use a magic substitute word called a swap which by virtue of federal law is deregulated so anybody who was nervous about buying these mortgage back Securities the these cdos they would be sold a credit default swap as sort of an insurance policy a credit default swap was available to them marketed to them as a risk saving device for buying a risky Financial instrument but there was a problem oh there was a big problem what was the problem well the problem was that if it were insurance or or called what it really is the person who sold the policy would have to have Capital reserves to be able to pay in the case the insurance was called upon or triggered but because it was a a swap and not Insurance there was no requirement that adequate Capital reserves be put to the side now who was selling these credit default swaps Bear Sterns was selling them lehan brothers was selling them AIG was selling them you know the names we here that are in trouble City group was selling them these investment Banks were not only selling the Securities that turned out to be terrible Investments they were selling Insurance on them well it made the it made made it easier to sell the terrible Investments if you could convince the buyer that not only were they going to get the investment but insurance but when homeowners began defaulting on their mortgages and wall Street's high-risk mortgage back securities also began to fail the big investment houses and insurance companies who sold the credit default swaps hadn't set aside the money they needed to pay off all the insurance contracts they'd written Bear Sterns was the first to go under selling itself to JP Morgan for Penny on the dollar then Leman Brothers declared bankruptcy and when AIG the nation's largest insurer couldn't cover its bad debts the government stepped in with an $85 billion rescue what role did the credit default swaps play in this financial disaster they were the centerpiece really that's why the banks lost all the money they lost all the money based on those side bets based on the mortgages how big is the market for credit default swaps we really don't know there's this voluntary survey that claims that the market is in the range of 50 to 60 or so trillion dollars it's sort of alarming that in a market that big we don't even know how big it is to within say1 trillion but $60 trillion $60 trillion I know it seems incredible it's four times the size of the US debt but that's the size of the market according to these voluntary reports and the Market's totally unregulated and this Market is um almost entirely unre regulated the result is a huge Shadow Market that may control our financial destiny and yet the details of these private insurance contracts are hidden from the public from stockholders and from federal Regulators no one knows what they cover who owns them or whether or not they have the money to pay them off one of the few sources of information is the international swaps and derivatives Association a Trade Organization made up of the largest financial institutions in the world many of them are the very same companies that created the vast Shadow Market lobbied to keep it unregulated and are now drowning there because of unanticipated risks the CEO Robert pickle says there's nothing wrong with credit default swaps the problem was the underlying mortgage Securities well there's clearly something wrong with the system if all of these leverag bets hidden leverage bets caused a collapse in the financial system it's it is something that we all need to look at and learn lessons from and we all need to work together to understand that in the F and and design a structure in the future that that works more effectively yeah my my point is the people that made these mistakes are the people you represent in your organization and many of them sit on the board m i mean if they didn't get it right who would these these people understand uh the nature of these products they understand the they didn't or they wouldn't have bought them they wouldn't have used them these are very uh useful transactions and if people do understand the nature of the risk that they're entering into well useful how come they brought down the financial system because perhaps they didn't understand the underlying risk uh in and nobody nobody really saw the effects that were going to flow through from The subprime Lending situation that that chapter is not over and there is much suspense and fear on Wall Street that there are other big losses out there that have yet to be disclosed they already dwarf what's been lost on those original risky mortgages as bad as the mortgage crisis has been 94% of all Americans are still paying off their loans the problem is Wall Street placed its huge bets and side Bets with all those fancy Securities on the 6% who were not we wouldn't be in any of this trouble right now if we had just had underlying investments in mortgages we wouldn't be in any trouble right now it's all the side bets it's the side bets you've got all these big Wall Street firms be Sterns Leman Brothers you got insurance companies like like AIG Merill everybody's lost a ton of money they're supposed to be the the smartest investors in the world and they did it themselves they did it all on their own that's the most incredible thing about this crisis is that they pushed the button themselves they blew themselves up now how much of this was just incompetence on the part of Wall Street the people who ran the truth is that on Wall Street a lot of people just weren't very good at their jobs it's as simple as that these people were being paid $50 to100 million a year some of them the guys that were running the places there is no defending uh the uh a trainee making $45,000 a year would have had the common sense not to bet the firm on mortgage cont rions that no one in The Firm actually understood that is not a deep point to comprehend somehow through I will call it a criminal neglect and incompetence the people at the top of these firms chose to look away to take more risk to enrich themselves and to put the shareholders and indeed the country itself ultimately the country's economy at risk and it is truly a not only a shame it's a crime

Financial Trouble Ahead

CBS

Transcript

in the hours after the fed's rescue plan was adopted by congress on friday the stock market started stressing over the next worry the credit markets dropping 157 points and signaling more trouble ahead for monday morning the news is not good the bailout package was necessary but it's not enough to solve the problem analysts are warning of another four to six weeks of frozen credit markets while treasury secretary paulson sets up the mechanism to purchase troubled assets from banks business has fallen off the cliff in the last few weeks as a result of the seize up in the credit markets there is just no borrowing going on people cannot get financing for anything banks remain fearful of lending to other banks businesses and even cities and states in addition to california's request last week for seven billion dollars of federal help 15 states are struggling to plug holes in funding it's a little frightening and i think california is the bellwether because it is so big and and the fact that the credit markets are not available to these municipalities these governments is worrisome and most economists add that with mounting unemployment a recession is already upon us and will last into next year i see the effects of this lingering financial crisis dampening growth for the next two or three years but there is some hope in the banking sector the bidding war between citibank and wells fargo for ailing wachovia signals that some banks have enough cash to bargain hunt and the treasury secretary has hinted there's more in the government's tool chest to help credit markets become confident to lend again i think you're going to see all parts of government throw the kitchen sink at supporting the economy and fasten your seat belts the coming week will likely be a bumpy ride too third quarter earnings reports start to come out this week that'll give investors a better handle on the health of the economy and could send stocks moving again although no one knows in which direction

Running On Empty

CBS

Transcript

[Music] These are tough times for automobile dealerships. At Luji Ordano's Dodge and Jeep franchise in New York's Hudson Valley, there are few customers and fewer sales. There's probably a place we've never been before in the automobile uh industry. We're feeling the pain. Giod blames the credit crunch for last month's weak performance. How bad is it for your sales figures? Uh I would say conservatively it's off 30%. In September, Chrysler, Ford, Toyota, and Nissan were all down more than 30%. Honda off 24%. GM only dropped 16% thanks to huge price cuts. This has been a hard year for America's automobile dealers, beginning with the skyrocketing price of gasoline, prompting millions of Americans to leave gasg guzzling SUVs sitting on the lot. Now, the credit crunch is making it increasingly difficult for people to get loans for any kind of vehicle. And we've had some uh reports of people with uh what would be admirable credit records not being able to get loans approved. Dealers are also paying higher interest on the lines of credit they need to stock their showrooms. The financial storm is taking a toll. In 2006, 295 car dealers went out of business nationwide. Last year, 430. This year, as many as 700 may be forced to shut down. This must be a really rough time for uh somebody trying to sell cars. Well, that's why my hair's gray. Neil Coerman owns a Toyota dealership in suburban New York City. His sales are also down, but he's still selling cars to customers with good credit scores. Marginal customers are having a harder time. We're going to need proof of income. We're going to need uh proof of employment. We're going to need uh some type of residential uh information. And the car industry, like the rest of the economy, needs last week's financial rescue plan to work. Randall Pinkston, CBS News, Croaton Hudson, New York.

Bailout: Will it work?

CNN

Transcript

The real key here is in the lending markets, the credit markets. After all, this crisis is all about a credit freeze. In fact, banks have been afraid to lend to each other for more than a day or two, and that underlies the crisis here. If the banks aren't willing to lend to each other, then they're certainly not making many loans to businesses, to consumers. The economy comes to a halt here in the United States. That's the big fear. Let's have a look at the indicator of what is really going on. Have a look at this. This is the three-month lending rate, bank-to-bank. It's called LIBOR, the London Interbank Offered Rate. It's actually a very important rate because adjustable rate mortgages here in the U.S. are often tied to this rate. So you see it's soared all the way up to 4.3%. That's a very expensive rate for a bank to be borrowing. And what we need to see is we need to see that 4.3% start to come down. And we'll get the first indication of that Monday morning, 11 o'clock London time, is when major banks all respond to a poll and the British Bankers Association puts out its LIBOR rates for the day. And so we want to begin to see just a little bit of a decline. Analysts say to get that, we've got to see a return. A return to trust. Banks, to be honest, aren't lending to each other except for very short terms. Basically overnight, there's very little trust that the other institution will pay you back if you lend on anything but an overnight basis. So if it's difficult for a bank to get a loan, you can only imagine the difficulty facing businesses, consumers, both large business and small business right now. So we're not going to see an instant resolution of this crisis. But hopefully we'll begin. To see a little bit of a thawing out of this credit freeze. I mean, after all, the bailout plan won't actually go into effect for several weeks. But the fact that it is now law, hopefully that will return some stability, some confidence to the marketplace.

Chinese lenders escape crisis

CNN

Transcript

hyper real estate became the latest casualty of the credit crunch highlighting the fact that the crisis has spilled over US borders to swallow up banks in Europe but here in Asia China's top leaders have had minimal exposure for more on how Chinese banks have managed to avert most of the damage or joined by Joseph muse in Washington DC he's the founder of Belmont partners and thank you so much for joining us this morning so talk to us about how the lending practices are different in China and the United States you know it's almost the exact opposite of how the United States has operated over the last few years certainly the problem we have today in the US is that there's been a lend lend lend mentality by banks in China they're focused on inflation and the Chinese government has raised the reserve ratio 17 times the last two years trying to almost stop the bank's from investing in Chinese banks and the Chinese government has raised the reserve ratio 17 times the last two years trying to almost stop the bank's from investing in Chinese banks and the Chinese government has raised the reserve ratio 17 times the last two years trying to from lending that I think it's it's really important to understand that in China that the reserve ratio is almost twice what it is here in the US and the US financial crisis stems from the mortgage fallout is there any fear that we could see anything like that in China I don't think so I think it's also worth noting that the the Chinese government officials are conservative by nature a lot of them are trained engineers and they're not necessarily the most important people in the world to be able to make a profit out of the financial crisis and the financial crisis is a very important factor in the financial crisis and the financial crisis is a very important factor in the financial crisis and the financial crisis is a very important factor in the financial crisis and the financial crisis is a very important factor in the financial 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