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Wall Street's First Open after Downgrade; World Markets React to Downgrade; Asian Markets Plunge after Downgrade; White House Denies Downgrade Blame; Understanding Standard & Poor's; America's Worst Day in Afghanistan; Governor Perry Prays for Economy; America's Worst Day in Afghanistan; Governor Perry Prays for Economy; Stocks Down at Open; America's Worst Day in Afghanistan
Aired August 08, 2011 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KYRA PHILLIPS, CNN ANCHOR: Good morning, guys. It's 9:00 am on the East Coast, 6:00 a.m. out West. Thanks so much for joining us.
Watching Wall Street and how it reacts this hour to the painful downgrade of U.S. debt. We'll also see how investors around the world are viewing it.
Grieving family members praise the loved ones killed in the nation's single deadliest incident in the Afghan war. Thirty Americans are killed in the helicopter crash, 22 of them elite Navy SEALS.
In Syria, brutal crackdown on protesters, more than 60 people are killed in the latest military operation which got under way yesterday.
Folks, we are about to witness history. This hour, Wall Street opens with the U.S. wearing the black eye of a downgraded credit rating. The prospect would have been unthinkable, even laughable, just six months ago. But while Congress bickered, the world watched and economists sneered and now it's all time -- rather, it's time rather for all of us to pay.
We're going to go from Wall Street to the White House and follow the markets from Chicago to Hong Kong.
Let's begin with Christine Romans in New York.
Christine, let's talk about all the things that this downgrade actually affects.
CHRISTINE ROMANS, CNN SENIOR BUSINESS CORRESPONDENT: Sure.
PHILLIPS: And impacts us right now.
ROMANS: Clearly, Kyra, it will be a line in the history books. So what will it mean for your pocketbook? First up, stocks. We have stock futures down 242 points now for the Dow Jones Industrial Average. That will hit your stock holdings today.
We'll watch to see what it means for your stock investments longer term. But I will caution you that in the case of Japan and Canada, when they lost AAA status, their stock markets rallied in the next year because the markets had been anticipating it. So there you go. It's not clear what will happen longer term with stock markets.
How about loans? If interest rates rise, longer term, it will make home loans, car loans, college loans, even credit card loans more expensive.
But here, I'm going to caution you again, Kyra, it is not written in stone what will happen in the markets right now. We are seeing interest rates fall, which means in the near term, you could have lower rates for some of your floating debt.
We'll be closely watching what it means overall for interest rates for companies, for insurance companies, for the companies that you invest in, how well they'll be able to borrow money.
But I want to also say very quickly here that a source close to the decision at S&P this weekend told me they're expecting very mild, real-world impact from this decision near term for you.
Your life does not change today because of what S&P did. You need to make sure your own financial house is in order and then watch what happens in the coming months of caution -- Kyra.
PHILLIPS: And we're going to talk a lot more about how to put that financial house in order in light of all of this.
Christine, thank you so much.
ROMANS: Good.
PHILLIPS: Alison Kosik is at the New York Stock Exchange. Of course we're all waiting for this hour's Opening Bell.
Alison, we're less than half an hour away. How are things looking?
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: We are about a half an hour away. And this is really going to be the first chance for investors to react, Kyra. And it's looking ugly. Get ready for the major averages to tumble.
Right now futures show that the major averages are down more than 2 percent. Dow futures, in particular, are down over 230 points. And this, of course, follows the sell-off that happened around the world while all of us were sleeping.
Gold prices, they hit another record high above $1700 of troy ounce. Of course this all coming after -- we had the worst week for stocks since the 2008 financial crisis. This was, of course, all of last week. That's when the major averages fell 5 to 8 percent.
Now as far as today goes, most analysts, they expect that you'll see this initial shock in the markets at the Opening Bell and to see a lot of emotional trading throughout the day. Then, they say, you know what? We may see stocks stabilize a bit. But remember this downgrade is unprecedented.
It's expected that you're going to see this kind of shock at the open. But, believe it or not, some of the fear was priced in last week when we did see stocks really take a tumble. And even though if we open 200 points lower, where we start, Kyra, is not necessarily where we're going to end up.
You know you look at Friday. The Dow swung 400 points and wound up ending a bit higher. So really it's anyone's guess what will happen next. And some say what you're about to see is really just a knee-jerk reaction -- Kyra.
PHILLIPS: Well, stay with us. That's what we're saying to everybody right now, all our viewers. We're following this, minute by minute.
Alison, thank you so much.
Now let's go ahead and take you to the nation's heartland and the activity that's rumbling to life at the Chicago Mercantile Exchange.
Ted Rowlands is there taking the pulse.
So, Ted, what's the early view?
TED ROWLANDS, CNN CORRESPONDENT: Well, the bond market has been open for 40 minutes now, Kyra. And as Christine talks about at the top, the short-term ramifications of the downgrade are that interest rates are actually going down because people are parking their money in U.S. securities.
Despite the fact that the U.S. has been downgraded, it is still the safest place to put your money worldwide. And that's what we're seeing early on here.
One of the things -- one of the effects that this downgrade could have on local government is a concern, and that is that municipal bonds around the country may also get downgraded because they're tied to the federal government. That's something people are watching very closely and communities across the country are watching very closely, because it's going to mean more expense to those local and state governments.
But right now the headline here is that everybody is watching for that opening bell in New York and interest rates actually going down a little bit in the short term because people are parking their money with the U.S. government -- Kyra.
PHILLIPS: All right, Ted, we're going to be talking a lot more this morning. Thanks so much.
Now let's go ahead and check in and see how investors are reacting around the world. We'll begin with the markets in Europe.
Leone Lakhani joining us now from London.
What can you tell us, Leone?
LEONE LAKHANI, CNN INTERNATIONAL CORRESPONDENT: Kyra, no surprises, the markets here are down as well across Europe. If you take a look at the numbers, they are down in -- the FTSE is down more than 1.5 percent. We've seen Germany's DAX and the Paris' CAC between 2 and 3 percent lower, and SMI in Switzerland doing the same thing.
Now we did see some of these markets open the day slightly higher. And two reasons for that, Kyra. First of all over the weekend, we got an issue -- got a statement from the G-7 ministers saying they were committed to restoring confidence. They would take whatever action necessary to restore confidence, although they didn't say what they were planning to do.
We also got a statement from the European Central Bank in which the central bank said it would buy back bonds from Italy and Spain in which you're seeing the yields jumping quite highly to unsustainable levels. That did do enough to lift the markets at the start of trading but they have gone back down.
And the reason for that, Kyra, obviously, everyone is looking out to what happens on Wall Street with the S&P downgrade. And also there's just a general concern about the overall debt crisis that's hanging over Europe like a dark cloud at the moment. And people are just concerned, it's very difficult to resolve at the moment -- Kyra.
PHILLIPS: Yes. Leone, thanks.
Let's get to Asia now.
Anna Coren, tell us what's going on from Hong Kong.
ANNA COREN, CNN INTERNATIONAL CORRESPONDENT: Well, Kyra, it all started off here. I mean of course Asian Pacific was the first region to react to the S&P downgrade in the U.S. credit. And it was nothing short of a blood bath. Some markets here, some of the main markets closing -- no, dropping, I should say, around 4 percent.
Thankfully it improved throughout the day. But it was still a sea of red when markets closed.
Let me bring you the numbers. Japan and Hong Kong closing more than below 2 percent. Australia's S&P ASEX 200, closing almost 3 percent. So is Kospi and Shanghai Composite down almost 4 percent. So certainly an ugly day for investors here in the Asian Pacific.
And Kyra, it is worth noting that China's official state news agency made a statement, a scathing assessment of the U.S. economy over the weekend, saying the U.S. must live within its means.
So there's a real sense of frustration here in the Asian Pacific, but particularly in China which, as we know, is the biggest holder of U.S. debt -- Kyra.
PHILLIPS: All right. Anna, thanks. Let's take it to the White House now and the -- it's reeling against the downgrade, bracing also against the backlash of all the public anger and the political gaming here.
Brianna Keilar is there.
Brianna, you know, what do you think? Will the White House have to step up its offensive in this blame game?
BRIANNA KEILAR, CNN WHITE HOUSE CORRESPONDENT: You know, this weekend certainly was an indication they are, Kyra. Some finger pointing from the White House going on at S&P because of the math, the White House says. A miscalculation in the deficit analysis.
This is what you'll hear some White House officials refer to as a $2 trillion mistake. Even so S&P had said that its judgment will stand, in part, because of the sluggishness of increase in the debt ceiling and the uncertainty that caused. That has the White House pointing a finger at House Republicans, saying it was Speaker John Boehner, who stepped away from a bigger reduction plan.
And so you certainly have some blame game going on. The White House also, though, looking forward and saying this is just proof, S&P's judgment that really something bigger needs to be done. This is just proof that this congressional committee, this fiscal commission, really needs to come together and do something that is bipartisan and balanced, as the White House puts it, tackling entitlement reform, tackling tax increases, something that's hard, respectively, for Democrats and Republicans.
In the meantime, Kyra, I should also tell you, big news involving secretary of the treasury, Timothy Geithner. He's going to be staying on as secretary. There has been a lot of speculation he might leave after this debt ceiling battle.
As it turned out, President Obama asked him to stay on and says they welcome his decision to stay on into fall of 2012. And as you know, there is a little election that we'll be seeing.
PHILLIPS: Yes. All right. Brianna, thanks.
And Opening Bell is just 20 minutes away. Coming up after the break, we're going to talk to financial lifestyle coach Clyde Anderson. He's going to tell us what he thinks we should do with our money.
And later, remember the warriors who went down in that chopper crash in Afghanistan. We'll hear from a widow of one of those Navy SEALS.
(COMMERCIAL BREAK)
PHILLIPS: We've been talking about it all this morning. The U.S. stripped of its AAA rating and exchanges around the world have been taking hits over this. U.S. stocks futures are down with the Opening Bell just a few minutes away. And on "Meet the Press" former Fed chair Alan Greenspan says it's not just the economy taking a hit. It's the American spirit.
(BEGIN VIDEO CLIP)
ALAN GREENSPAN, FORMER FEDERAL RESERVE CHAIRMAN: What I think the S&P thing did was to hit a nerve that there's something basically bad going on. And it's hit the self esteem of the United States, the psyche and it's having a much profounder effect than I conceived could happen.
(END OF VIDEO CLIP)
PHILLIPS: And the S&P stands by its decisions, saying it's based on $14 trillion in debt and our political instability or inability, rather, to control it.
But what is the S&P and how do they have so much sway over the economy?
Christine Romans, let's talk a little S&P 101. What is it and who is it?
ROMANS: Well, look, Standard and Poor's is one of three big ratings agencies, right? You've got Standard & Poor's, Moody's and Fitch. They each analyze how much risk, Kyra, is involved in a country's debt. They assign a grade to show a country's ability to pay back their loans.
The safest bets are stamped AAA. And that's the rating that the United States held since 1917 until Friday. Now those ratings are based on the opinions and the analysis of the agencies. And right now S&P is pessimistic on our government's handling of America's debt.
Here's the criteria, the things, the five factors they look at when assigning what's called a credit score first to a sovereign debt. They're each rated on a scale of one to six and create a political and economic profile and also a flexibility and performance profile of what is happening in a country.
And the agency said political risks and a rising debt burden were the two driving forces in its downgrade of America's once stellar credit rating.
Now U.S. has been downgraded. How do the other countries stack up? Well, here you go. These are some of other countries. Sixteen actually are left in AAA -- in S&P's AAA club.
You'll notice that China, the world's second largest economy, Kyra, and the biggest foreign holder of America's debt is not here. S&P assigned China a rating two notches before the U.S. at AA minus.
And I should point out, the AA plus is still very, very good. It's still a very good credit rating. It's just not perfect.
So why do these credit agencies matter, Kyra? Who listens to them? Obviously we're all listening to them right now. They're closely watched by investors and leaders around the world, Kyra, for their judgments on debt investments. For governments, the rating agencies have an awful lot of power over the interest rates on the bonds that they can sell to investors. The safest bets pay the lowest interest.
And who pays these agencies? A lot of you are asking us that.
These agencies are either paid for by the borrower, who wants to know what a rating is, for something that it's going to try to buy. Also, from subscribers who receive the published ratings in their related credit reports.
And S&P tells us, Kyra, that the U.S. rating is unsolicited and that the U.S. government does not pay for its rating -- Kyra.
PHILLIPS: And -- OK. Christine, thank you so much.
And, of course, you know, the biggest question on everybody's mind right now is what does the debt downgrade mean for me? How is it going to affect my borrowing and what I need to do?
Clyde Anderson is a financial lifestyle coach and CNN contributor.
And, you know, Clyde, we've been talking about mortgages, car loans, credit cards, all of this, right?
CLYDE ANDERSON, CNN CONTRIBUTOR: Yes.
PHILLIPS: So, where are we going to feel it first?
ANDERSON: Well, I think, when you look at borrowing -- you know, from a borrowing standpoint, we're going to feel it as far as rates. A lot of short-term rates really where we're going to feel that impact. So, cars -- so, people who are looking to buy cars right now. You're going to see those rates increase.
And it's interesting, also, maybe on some student loans as well. You know, recently, part of the debt deal was that graduate students with subsidized loans no longer can have that. So, they're going to pay interest rates on them. So, those rates will go up as well.
And even on credit card rates, we can see a 1 percent to 5 percent increase on credit card rates.
PHILLIPS: What's going to hurt the most, do you think?
ANDERSON: Well, it's hard to say right now. I think Greenspan really hit it when he talked about the sentiment, the emotions that we're feeling right now. And so, I think that's the thing.
So, we're losing that faith. And so, when we lose the faith, it's going to be hard. So, people aren't spending. And right now, we know we need people to spend money in this economy to really kind of boost back. And we looked at all the interest, the information about jobs and those things not being there right now.
So, we're in a really tough spot when you look at it from that standpoint, Kyra.
PHILLIPS: So, if I came to you and I said, I've really got to borrow some money right now -- and there's a lot of people out there that need to.
ANDERSON: Yes.
PHILLIPS: How would you advise me?
ANDERSON: Well, I've got -- you're going to make sure that you have tip-top credit right now to even get into that conversation about borrowing funds. So, if you do have that tip-top credit, you really want to go and do whatever you need to do right now because, again, it's so uncertain. So, before we see any movement, we want to look at that.
Now, on the mortgage side, we may see a better or an improvement on the rates because a 10-year treasuries right now are doing pretty well. And so, what happens now on that standpoint, the 10-year treasuries are up, then the mortgage rates go down. And so, a lot of people are speculating that the mortgage rates are going to go up. So, we don't see that happening right now.
PHILLIPS: And you actually have gone out to say, look, the long-term effect is not going to be that bad on borrowing.
ANDERSON: Yes.
PHILLIPS: Because if we look at history --
ANDERSON: Exactly.
PHILLIPS: -- Japan, Canada, it ended up being OK.
ANDERSON: Exactly. I mean, we're still in a good spot right now. And the market is waiting or anticipating people to react. And that's what people have been doing. They've been reacting.
So, you just kind of got to sit back and look, and don't let the emotions just take over. Don't jump into anything too quickly.
PHILLIPS: You sound like a typical financial planner. Don't panic. That's all we heard. Yes, stay there and don't panic.
And next hour, we're going to talk more about -- if I brought my 401(k) to you, you'd tell me exactly what to do.
ANDERSON: Exactly.
PHILLIPS: You got free tips today. I'm going to start printing my stuff out on the computer and everybody else here as well.
ANDERSON: As long as you don't panic.
PHILLIPS: Yes, there you go. Thanks, Clyde. We'll talk next hour.
ANDERSON: My pleasure.
PHILLIPS: OK. Standard & Poor's is defending its decision, again, this morning to downgrade the nation's rating. And CNN's Poppy Harlow actually had a chance to talk to the head of S&P's global sovereign debt. We'll talk to her, next.
(COMMERCIAL BREAK)
PHILLIPS: President Obama's former top economic adviser says the credit downgrade is another body blow to an already weak U.S. economy. Larry Summers says it's an indictment of the way Congress is dealing with key economic decisions and U.S. families will pay the price.
(BEGIN VIDEO CLIP)
LARRY SUMMERS, FMR. DIRECTOR OF THE NATIONAL ECONOMIC COUNCIL: The large issue here is that the House majority played chicken with America's credit worthiness, and America's families are now going to be the losers.
(END VIDEO CLIP)
PHILLIPS: And Treasury Secretary Tim Geithner also blasted Standard & Poor's, saying that the credit agency showed terrible judgment in downgrading the U.S. debt.
CNN Money's Poppy Harlow actually just talked to S&P's global head of sovereign ratings. He defended that downgrade and warned future downgrades may lie ahead.
Poppy, what else did he tell you?
POPPY HARLOW, CNNMONEY.COM: You know, he vehemently defended the agency against Geithner's strong words. He did in two says, Kyra. He first, he point to what he calls the damage that the debt ceiling debate in Washington had overall in our economy. He went on to say that the U.S. and our public finances right now are on an unsustainable path. He said Geithner made those two points, that he didn't dispute the facts.
Here's more.
(BEGIN VIDEO CLIP)
DAVID BEERS, S&P'S GLOBAL HEAD OF SOVEREIGN RATINGS: The Treasury is clearly unhappy with our decision to downgrade, but isn't disputing the underlying analysis that we're making, both on the path of public finances and also on the process as it's playing out right now in Washington, which makes it extraordinarily difficult -- extraordinarily difficult to find common ground across the political divide, and the political choices that are needed to stabilize the debt burden over the medium term.
(END VIDEO CLIP)
PHILLIPS: So, Poppy, does he think a downgrade could make the bad economic situation even worse?
HARLOW: That's the big question. He said it's not clear what kind of impact it's going to have on interest rates. That's what we all care about from our mortgage, to our car, to college loans. He said he expects the overall impact to be relatively mild.
But we have such volatile stock marks around the world right now that may not be the case. He pointed out the strong global headwinds to our economy and said, look, downgrade is just one of the many factors that can weaken further this already weak economy.
But, Kyra, he said we've got a one in three chance right now of a second downgrade to the U.S. economy in the next six to 12 months if things don't change substantially.
So, I think, not only have they downgraded us once. This could happen again in the next two years. And he pointed out troublingly the fact that our economy is on what he calls a path to future growth that remains sluggish.
So, we still got a lot of outliers here that are not clear. But the most interesting part in all of this, how political this decision was.
PHILLIPS: Oh, yes, and just increased pressure now on Congress.
Poppy, thanks so much.
Alison Kosik also monitoring everything from the New York Stock Exchange for us this morning.
Alison, we're expecting a sell-off today. Then what?
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Then, you know what? Everyone wants to know, is this the start of another downturn in the market? Which is a really good question because no one really knows if this is a start of another downturn, because the fact is that this downgrade is unprecedented. We don't know what the full effects of this are going to be.
You ask many analysts -- they say, no, this isn't necessarily the beginning of a long-term downturn because you know what? The downgrade was expected. S&P warned of this months ago, and its impact is actually more political and psychological than financial.
You're seeing kind of a hit to the confidence of the market. So, some of it may have already been priced in the past few weeks.
Also, you have to remember, Moody's and Fitch, they haven't followed in the footsteps of S&P. So, keep in mind, this selling that you're going to see this morning at the opening bell in about six minutes is probably going to be a knee-jerk reaction where we're going to see the Dow plunge into the triple digits.
And analysts say, you know what? The big concern here is that you'll see emotional trading -- you know, trading on this fear of the "what if," you know, what could happen?
And the scary thing is, Kyra, that it could be a self-fulfilling prophecy, at least in the short term, until we see stocks level off a bit and stabilize a bit. Some traders tell me they expect that to happen -- Kyra.
PHILLIPS: All right. You and I -- you just mentioned, we're talking about possibly a 200-point drop at the open.
Gold, though, hitting a record high. Silver lining here?
KOSIK: Yes. There is. And then you look at treasuries. The 10-year treasury bond is falling. And that's kind of counter intuitive.
So, think about it. The U.S. government securities, that's exactly what S&P downgraded. You know, some have been talking about this big spike in rates. We don't see that happening right now.
Also, oil prices are down 3.5 percent, trading at around $83 a barrel. We saw the same thing happen during the financial crisis because the thinking is, if the U.S. economy takes a hit, oil demand is going to take a hit, too, because you're not going to see consumers out there, filling up their tanks as much.
But I'll be honest with you, you know, it's not necessarily worth celebrating these low oil prices because it's really taking a huge sell-off just to get there, Kyra.
PHILLIPS: Hey, Alison, just minutes away until the markets get going. We're going to see how they respond to the big downgrade at the opening bell.
Stay with us.
(COMMERCIAL BREAK)
PHILLIPS: All right. The opening bell, we're almost there. It looks like just about 60 seconds now and forecasts this morning have been pretty darn grim.
Alison Kosik, Christine Romans, Richard Quest -- let's all vamp here for a second.
Alison, we're almost there. Take us through the first few moments here of trading, as the clock is ticking.
KOSIK: We are about 45 seconds away to see how investors are going to reach to the U.S. markets. This is their first chance to react and get ready. You know, fasten that seat belt.
We were expected to plunge into the triple digits. We know this because we've been watching Dow futures. They are down over 200 points.
You know, what to expect here is a lot of emotional trading, a lot of knee-jerk reaction.
And this is to be expected. You think about what S&P did. It's historic. And we're watching history in the making as we're waiting for the opening bell in about 25 seconds.
You know, this has never happened before. No one really knows what to expect. And at the same time, we're also keeping our eye on the bond markets. We're not seeing a reaction there.
We're probably going to see the reaction here as the opening bell rings. We got about five seconds before the numbers start posting. But get ready for that knee-jerk reaction, that emotional reaction to the historic move by S&P.
We are starting in the red, as we go down, as we speak. Dow down 19 points as it continues to slide -- Kyra.
PHILLIPS: All right. We're going to keep the numbers up. Stay with us, Alison.
Christine, you know, today, what do you think the biggest concern is? Or is this just the tip of the iceberg?
ROMANS: Well, you know, let me tell you about -- you're only seeing 26 or 33 points, that's because each of these Dow component is opening up one after another right now. So, that is not giving you the full effect of how much selling there's going to be here. So, that's going to take a couple of minutes.
Tip of the iceberg -- that's a good question because for stock investments today, they could have a big hit. But we have no idea how things are going to end up at the close, Kyra. And it's been wild.
Remember last week in stocks? You already saw a huge decline. So, there could be, quite honestly, professional investors who are buying stocks today and you've heard a lot of people over the weekend counseling real Main Street investors, don't freak out today. You already have seen a big decline. This is not the time to be freaking out in your 401(k) or the like.
In terms of stocks versus bonds, the bond market is twice as big as the stock market. And the bond market actually affects everybody because of those interest rates, how they move and how they change will affect every area of your life, or could, from car loans to house loans to student loans to what your companies in your neighborhood are doing, how well, you know, your local government can borrow money so that it can do improvements in your neighborhood. So, that's what we're really, really going to be watching, longer term for the impact on your own dollar.
I want to say very clearly, that the bond market -- there has been safe haven, buying into the bond market. What that means, Kyra, is that bond -- interest rates have actually been going lower. So, you could see in the near term interest rates actually fall for the things that you care about, before they end up moving higher later on -- Kyra.
PHILLIPS: We're in negative territory, Dow industrials down 226 points right now.
Richard Quest, a broader impact here, internationally, for sure.
RICHARD QUEST, CNN INTERNATIONAL BUSINESS CORRESPONDENT: Absolutely. But don't panic. Don't panic yet.
We're seeing nothing that we didn't expect. And we seem to have just hit a very temporary lull, as so many of those Dow 30 have opened. We have seemed to hit a lull of 230 points down, just around 2 percent.
Europe is roughly the same. Although, the DAX in Germany is off 2.6 percent, 2.7 percent at the moment.
But this was not unexpected. So, at the moment, I would say just -- have another cup of tea. Sit calmly. Let's just wait.
We've got many hours of trading before this one is over.
PHILLIPS: All right. We are sipping that cup of tea or that cup of coffee, whatever we sip in the morning. Grab the Red Bull.
Let me ask you a couple of questions since I have you, and your international expertise, Richard.
You know, Luxembourg is rated AAA. So, is the U.S. really a bigger risk here?
QUEST: Oh, come on. We know that the U.S. is not going to default on its debts. And we know the reasons why this was done. And we know the political backwards and forwards, the blame game that's been going on.
In terms of U.S. treasuries, they were as safe today as they were last week, as they'll be next week. What this is, long term, there will be ramifications. There will be nuisance.
For instance, those bonds that guarantee Israel debts -- they've also been downgraded by S&P announced out of London. Look at the nuances.
Keep your eye, Kyra, in the hours ahead, on the big picture -- growth, interest rates, potential for double dip. What's happening with unemployment? What's happening with the job market? Keep your eye on those big picture items.
PHILLIPS: All right. Speaking of big picture, you know, other countries have lost their AAA ratings in the past and ended up not paying more to borrow in the long run, Richard.
So, is it possible that that's what could happen with us?
QUEST: That's exactly what's going to happen, providing -- providing that the politicians in Washington do a long-term deficit reduction deal. That's what has to be done. All three rating agencies have said it. It's only S&P that's downgraded.
But everybody agrees that the long term -- remember, we are not talking about taking deficit reduction measures in the middle of a recession or a slowdown. You're talking about the long term deficit reduction.
Now, what's likely to happen today? You see the markets found a bottom. It's found a bottom down at roughly 1.7 percent, 1.9 percent.
We know treasuries yield on the 10 have come back a bit because of worry about growth. We know gold is at a record high. Oil has come down because of worries about economic growth.
These are the big picture items that really help us more understand what's going on than the knee jerk of whether the Dow is up at any given moment.
PHILLIPS: Now, Alison Kosik, did you notice that, as Richard was being a little more optimistic, the numbers started getting a little better? I'm wondering. Is everybody listening to --
KOSIK: Exactly. It's like they heard him talking.
PHILLIPS: Exactly. But you pointed out some of the same things he did.
KOSIK: Yes. I mean, you know, you're going to see that kind of initial freak-out, which we saw and then you'll see it calm down. In fact, even just watching the VIX, that gauges the fear for the volatility in the market, that's come down a little bit as well, ever so slightly.
So, yes, you saw that initial knee-jerk reaction. And then everyone -- kind of cooler heads prevail, you see here.
You know, one thing I just want to point out what's happening here in the markets overall. Even last week, when you saw those huge drop in the Dow, 512 points, you're seeing a market that's re-pricing these stocks -- each individual stock -- in relation to how the economy is doing.
You have to remember, we got that really weak GDP report a week or so ago, showing that we've got anemic growth here in the U.S.
Well, you know what? Investors stepped back. They took a look at their stock and said, you know what? I think all of these stocks are overpriced, considering where the economy is and where the economy is going.
Remember, Wall Street is a forward-looking indicator. So, what we're seeing today is this knee-jerk reaction to S&P, and people just sort of figuring out, gee, what does this mean for the future? And that's why you're seeing this sell-off as well, Kyra.
PHILLIPS: OK. Stay with us now.
Here, we got Ali Velshi in the house.
Ali, is that true? Are you with me?
ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: I'm with you, Kyra.
PHILLIPS: OK. So, Ali, you've obviously been covering the financial aspect of this, as well as the political aspect. So, you've been listening to Richard, Alison and Christine. So, overall, you know, what do you think the -- I guess, does this come down to just a sense of urgency and pressure on this new congressional super committee, rather, that now has to come back and talk about some new measures here?
VELSHI: Yes.
PHILLIPS: I mean, does it look like we're kind of safer than we thought? And now, this was all about just putting pressure on the right people politically?
VELSHI: Yes, there is a road out of this. It is very different. As Richard points out, it is very different from the situation that Italy, and Spain and, for that matter, Greece are, where is much more structural than it is political.
Here in the United States, and the S&P has made this very clear and you can be mad at S&P for not getting it right in the 2008 financial crisis and not getting the Lehman Brothers and AIG ratings right. But they've actually been pretty good on sovereign debt, country debt. And they are making the point that this is as much political as it is otherwise.
The danger here and I have to disagree with something Richard just told you, that we're not talking about, you know, short term cutting spending in what feels like some people to still be a recession, even though it isn't. We are. Those people who voted against the debt ceiling increase, the fiscal conservatives who voted against it did so in many can as because they said there's not enough cuts happening now. We've got to wait for a couple of years before the agreed upon cuts happen.
There are people who think we should be cutting right now. And Richard lives in England. He knows this is dangerous. It's really, really bad for the economy.
So, there's two issues here. One is we've got a road out and this policy committee has to figure it out. S&P has spelled out what that road is. They said if we mess up again, we could have further downgrades.
Moody's, Christine told you, said in its weekly letter out to its clients that they might downgrade the United States.
So, we are not out of the woods by any stretch of the imagination. And until people start to understand that you cannot cut government spending at this point in a recovery, we risk becoming -- getting in a worse situation than we've got right now.
That said, this market is oversold and I think you've got investors who are buying in, who think that this isn't the place where this battle should be playing out, on the stock market.
PHILLIPS: OK. I heard you call out our Richard Quest.
And, Ali, I'm going to try to bring your two back. He had to go actually to do a live report for CNN International, our sister network there. So, point well made. We'll bring you guys back, obviously, be talking about this all morning.
VELSHI: Good.
PHILLIPS: Ali, thank you so much.
We're going to watch the markets throughout the day.
But, also straight ahead, we want to turn to another big story, and that is that U.S. helicopter that was shot down in Afghanistan. The widow of one of the Navy SEALs on board says that he wouldn't want to leave this earth any other way.
You're going to hear from her.
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: I want to tell the world that he was an amazing man, that he was a wonderful husband and a fabulous father to two wonderful children.
(END VIDEO CLIP)
PHILLIPS: Coming up next, remembering the warriors who went down in that chopper crash in Afghanistan.
(COMMERCIAL BREAK)
PHILLIPS: History has been made with the S&P downgrade. And now, we're waiting to see if the numbers are going to do the same.
Right now, 15 minutes after the opening bell, Dow industrials down 180. You heard from all our money analysts here live on the air. This is what we've expected. But we're going to continue to watch it, of course, throughout the day. Stay with us.
The other big story we've been talking about, a NATO helicopter made a hard landing in Afghanistan today, two days after that chopper crash that killed 30 Americans. There were no casualties today. Twenty-two Navy SEALs were among those killed in Wardak province Saturday.
The Taliban says that a rocket propelled grenade downed that helicopter. The crash site has been cordoned off and recovery efforts and an investigation continue.
Well, the Chinook crash was the single largest loss of life for U.S. forces since the Afghan war began nearly 10 years ago. And the SEALs ultimate sacrifice has hit one Virginia community especially hard.
Brian Todd joins us now live from Virginia Beach with that side of the story -- Brian.
BRIAN TODD, CNN CORRESPONDENT: Kyra, it's been a tough couple of days for Virginia Beach and in Norfolk. These are two Navy towns, through and through. A lot of Navy installations in this area, including two key Navy SEAL bases in this general vicinity.
You know, the Navy SEALs and their missions are a real point of pride for people here. They don't know much about the SEALs. They don't know their identities. But they still find themselves identifying with the SEALs.
And, you know, one of the most moving parts of any of these situations, including this one, one of the moving aspects is when you hear from loved ones about what it was like when uniformed officers come to their door and inform them that their loved one had been killed.
We spoke to Kimberly Vaughn. She is the widow of Navy SEAL Aaron Carson Vaughn. And she told us what that was like.
(BEGIN VIDEO CLIP)
KIMBERLY VAUGHN, WIDOW OF NAVY SEAL: I woke up, saw the reports on the TV. My mother came and told me about it. And I thought I was OK. Nobody had come.
And as I come up the stairs, I heard the door bell ring and I thought, oh, hopefully, it's just a neighbor. As I rounded the stairs, I saw the men in uniform. And I just fell to my knees.
It was just -- there's no preparing for it. You know, it's something that you see in the movies, not something you're supposed to live through. But it was men from the command and, you know, it was as nice as it could be, I guess.
(END VIDEO CLIP)
TODD: Kimberly Vaughn is now left to care for a 2-month-old daughter and a little boy who is going to be about 2 years old next month. She says -- the family says that Aaron Vaughn left for his latest deployment in Afghanistan only about two weeks after the little girl was born -- Kyra.
PHILLIPS: Brian Todd, it was definitely and continues to be a tough story for all of us to hear. And if you want to hear more on the helicopter crash, you can check out our new national security blogs, security clearance at CNN.com/security. Reports, analysis, opinion pieces. We're also on Twitter @nationalsecurity CNN.
Well, coming up, can you pray away a bad economy? Texas Governor Rick Perry raised some eyebrows at a rally in Houston when he did just that. But does this blur the line between politics and religion? We'll debate it.
(COMMERCIAL BREAK)
PHILLIPS: Well, this weekend in Houston, Governor Rick Perry stood before thousands of people, a live band, his face up on jumbotrons. But he wasn't announcing his candidacy for president, at least not yet. The gathering was supposed to help kick start our sluggish economy, but not with politics, with prayer. So was this a political rally or Christian revival?
CNN contributors, Will Cain from New York and LZ Granderson from Grand Rapids, Michigan.
Ok guys, when you see this video and you listen to his speech it sort of brings back memories of Billy Graham at one of his famous revivals. Was this a smart move, Will?
WILL CAIN, CONSERVATIVE POLITICAL ANALYST: Politically, yes, yes. It was a pretty smart move, Kyra. I'd say this. Listen, I don't think we should begrudge individuals their ability to practice their faith in public just because they've been elected to office. I don't think that requires you to hide your faith.
That being said, this thing is kind of odd. Look, the atmosphere to this deal with people swinging and swaying and falling out, it did look like a revival. It did look like something Joel Osteen would put on. And the cynic in me, it's hard -- look, Rick Perry crafted this so it's hard not to think there are political motivations.
PHILLIPS: LZ?
LZ GRANDERSON, CNN.COM CONTRIBUTOR: It's interesting, because I don't think Joel Osteen was actually there. But with that being said, it was at his church -- but with that being said, I agree with Will.
CAIN: He would have filled it up.
GRANDERSON: You should be able to practice --
(CROSSTALK)
PHILLIPS: It's true.
GRANDERSON: You can have whatever religion you want as a political office holder.
But my problem is that he's trying to mask and pretend like this is all about religion and not about his politics, even though he invited other governors. And so I think he needs to be more honest and fore -- and foremost with in terms of why he did it in the first place.
PHILLIPS: So you thought he was being dishonest here, LZ?
GRANDERSON: Well, absolutely. You can't tell me when you invite politicians, you can't tell me when your name is up for being president or a presidential candidate, at least, that you did not know that you can put two and two together and equals four.
And with that being said, Democrats and liberals really don't have a leg to stand on because their candidate's also going to black churches and trying to get the black vote to get behind them as well. So both parties are guilty of doing this.
PHILLIPS: Now Will, this is his home -- go ahead, Will.
(CROSSTALK)
CAIN: Yes, that -- I was going to say dishonest is a little harsh, Kyra. I would say he was being political. Politicians feigning piously to this (INAUDIBLE) to kissing babies. So I don't know about being dishonest, but he was being a really good politician.
(CROSSTALK)
GRANDERSON: As soon as you say political --
PHILLIPS: All right, so let me ask you this.
GRANDERSON: He's a politician. He is dishonest.
PHILLIPS: Oh, boy. Here we go, now it's going off into this -- well, look, it was his -- it was his home state, right? So you have to expect the turnout and that how successful it's going to be. A lot of people said hey, he was taking a big risk but when you look at it, ok, he did pretty well and you can understand why.
But bottom line, if you want to talk about the politics here, will it work in Iowa, in New Hampshire, in South Carolina, LZ?
GRANDERSON: If you follow someone based solely upon their Christian values then yes, it was a brilliant plan and there are tons and tons of voters we know who would vote if you say Jesus more than twice. So in that case, yes, I think it will work in some of those other states.
PHILLIPS: Will?
CAIN: Yes. Yes. I mean, we can talk about whether or not it should work, but will it work? Yes, absolutely.
PHILLIPS: All right, we'll see. We'll find out, won't we? Apparently he's going to say something within a couple of weeks and we've heard that week after week. A lot of people praying for him, I think. LZ, Will, thanks, guys.
And a reminder: for all the latest political news go to our Web site, CNNpolitics.com.
Well, some think it's a bird or maybe a bat got stuck aboard at Delta Airlines flight. We're going to tell you or try to tell you what exactly happened to this stowaway coming up next.
(COMMERCIAL BREAK)
PHILLIPS: Checking news cross country now.
The FBI searching for the Dougherty family. Lee, Ryan and Dylan are siblings and they are wanted in connection to an arm bank robbery in Georgia and the attempted murder of a Florida police officer. Their faces are on hundreds of billboards across the southeast now.
Parents of six Alabama students who were killed by tornadoes accepted diplomas for their children this weekend. Students say that the graduation ceremony helped bring closure. The April storm killed 47 people, six of them had been attending school in Tuscaloosa.
And a bird or bat somehow got on aboard the Delta Airline's flight from Madison, Wisconsin to Atlanta on Sunday when a passenger took this video just before it got trapped in the bathroom and it slipped away as quickly as it had come in.
All right, we're following lots of developments in the next hour of the CNN NEWSROOM. Let's check in first with Richard Quest -- Richard.
RICHARD QUEST, CNN INTERNATIONAL BUSINESS CORRESPONDENT: In the next hour the markets are down, but it is early days on a long trading session. How will they respond? We'll have details from the United States markets and of course, those around the world in Europe. When it's open, we're reporting on it.
SANDRA ENDO, CNN CORRESPONDENT: I'm Sandra Endo at a car dealership in Los Angeles. How will the U.S. downgraded credit rating affect businesses and consumer confidence? I'll have that story coming up at the next hour.
KEILAR: I'm Brianna Keilar at the White House where officials are slamming S&P for downgrading the nation's credit rating and taking aim at House Republicans too. Details ahead in the NEWSROOM.
PHILLIPS: All right, guys. Thanks so much.
And also next hour it's being called the worst humanitarian disaster in the world; 12 million people starving or at risk in the Horn of Africa.
Our Dr. Sanjay Gupta is there and joins us live.
(COMMERCIAL BREAK) PHILLIPS: As you know, that warning shot has been fired and this is a result of the S&P downgrade; Dow Industrials down 187 points. We are watching the numbers for you very closely all throughout the day.
