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Stock Market Plummets; More on the US Credit Rating Downgrade

Aired August 08, 2011 - 15:00   ET

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

BROOKE BALDWIN, CNN ANCHOR: And welcome back to the CNN NEWSROOM. I'm Brooke Baldwin.

We have a huge two hours for you, including the fact that we're 60 minutes away from the close on Wall Street. Take a look at the number right there, another horrendous, wretched, you fill in the adjective, day for stocks, the Dow down 523 points right now on the first trading day, the first full day since the controversial downgrade of America's credit rating, that happening Friday night.

We have our all-star team standing by across the country and around the world. We have Ali Velshi. We have Richard Quest. We have Alison Kosik. We're going to go to all of them here in just a moment. Also today, Erin Burnett will be joining me live.

Again, one hour ago, we heard from President Obama and we heard him make sort of a backhanded reference to the downgrade issued by S&P. In fact, he did it right off the top. He also said he's hopeful right now. Listen to the president.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: This is the United States of America. No matter what some agency may say, we've always been and always will be AAA country.

All the challenges we face -- we continue to have the best universities, some of the most productive workers, the most innovative companies, the most adventurous entrepreneurs on Earth.

(END VIDEO CLIP)

BALDWIN: So quickly here, a little perspective.

In the past two weeks, beginning Friday, July 22, the Dow has lost more than 1,600 points. And you see this graphic here. It takes us through last Friday. We're continuing to see, as you have been watching the Big Board, additional losses today.

Richard Quest is live for me on Wall Street.

But, Ali Velshi, I want to begin with you in New York.

And, Ali, at one point in the last hour, when I was watching you and Wolf and of course the president, at one point, the Dow dipped below 600 points. So I have all kinds of questions. Let me start with two, two questions for you.

ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Yes.

BALDWIN: What do you make of today's volatility today and what will it take for the markets, Ali, to stabilize again?

VELSHI: They have to become rational, Brooke. This is not a rational -- And I'm getting people tweeting me saying, why do I keep saying that?

Let me explain exactly what I mean by this. The credit rating of the United States was downgraded. If you downgrade somebody's credit rating, it should cost them more to borrow. They're a slightly greater risk. So where you would see that play out very specifically is in U.S. bonds, three-, five-, 10- and 30-year bonds. Those yields or the interest rate that it costs the U.S. government to borrow money have gone down from Friday.

In other words, it is cheaper today than to borrow money back when we were a AAA-rated country. Why? Because where are you going to take that money? This is big money. U.S. bonds are big money. There are other AAA-rated countries that pay higher interest. Australia and Canada are two examples of that. But they don't put out as much debt.

You can't take your money out of the U.S. dollar,s out of these bonds and put them into somewhere else. A big economy -- big economies where you can do that are European economies. But who is putting their money into Europe right now? The debt side of things hasn't reacted to this downgrade. Debt markets in the world, bond markets are twice as big as stock markets are.

The total value of all bond markets is twice as big as the total value of all stock markets. So you didn't see the reaction where you were supposed to see it. You're seeing it play out here in the stock markets.

And that's why that's irrational. When I say irrational, it means people are selling because they're seeing other people selling. Computerized programs are triggering selling because stocks hit a certain point. That's what you're seeing. It's sort of momentum. Add to that that AIG is suing Bank of America, and that stock, which is part of the Dow, is down, I don't know, last I checked, it was about 16 or 17 percent. That's a part of it. But it's not entirely rational behavior.

(CROSSTALK)

BALDWIN: Do you then think, Ali, that the numbers we're looking at here, do you think that this just this initial shock to all of the different factors you rattled off and that after today, perhaps it will start to level out?

VELSHI: Brooke, if I knew the answer to that, I would be calling this report in from my yacht.

I will tell you, it didn't make sense today. BALDWIN: Wishful thinking on my part, I guess.

VELSHI: And Thursday's drop, which you and I were covering together, is actually not as bad as this. It was 512 points, and from a percentage basis, it was 4.3 percent. We're already at 4.4 percent.

(CROSSTALK)

VELSHI: The S&P 500 which is very reflective of your 401(k) and IRA, we have got bigger losses today than we did on Thursday. On Thursday, that was actually a real reason. If you recall, you and I discussed, this was the Europeans talking about the Italian and Spanish debt. There was an issue. There was a real, believable issue. It shouldn't have gone on as long as it did, but it was a real issue. This is unusual.

BALDWIN: Well, you mentioned Italy and you mentioned Spain. Let's bring in Richard Quest, who is actually not too far from you on Wall Street.

And, Richard Quest, let's just begin with I know that European Central, they came out with a statement yesterday saying that they're ready to start buying Italian and Spanish government bonds because of all these fears of default.

Talk to me about how what's happening in Europe is playing into our markets and vice versa.

RICHARD QUEST, CNN CORRESPONDENT: Well, because you and I have talked so many times about globalization, the sheer extent of which money just flows across the Atlantic backwards and forwards. And you're seeing that today.

The European markets were down very sharply, Germany down more than 5 percent, The u.K. down heavily as well. And yet, the bond markets in Italy, they did rally slightly because of that buying. What we're seeing -- and Ali talked about it so eloquently just a second ago -- what you're seeing is not rational. There's no reason.

Look, we're no worse off today than they were -- than we were on Thursday or Friday.

I remember once an old trader once said to me, markets don't crash on a Monday in August. Well, they don't crash on any day in August. It's just a day when fear grips the market and the cycle begins. And that's what's happened and it's going to take more than just frankly a few bits of soothing words from a president and the ECB to try and put this right.

BALDWIN: Well, then, Richard, what will it take? What do folks in Europe need to see from Washington in order for the markets to improve?

QUEST: They need to feel that the policy-makers are ahead of the curve. Remember, it was the debt ceiling crisis that precipitated what took place in the United States. It wasn't a raising of the debt ceiling to $16 trillion. It was the bickering and the inability to get that agreement that caused the uncertainty and the lack of confidence.

In Europe, it is the inability of them to put to rest this debt problem of countries that have overspent, the Spanish, the Italians, the Greek, the Portuguese and the Irish. And it's that scenario -- look, at the end of the day, markets are you and me. It's our 401(k) plans, our investments, our children's wedding and bar mitzvah funds.

That's what makes up what's in that building behind me. It's not some ethereal money machine. It's real people's money. And at the moment, what people are looking for is confidence in the pillars over there.

BALDWIN: Well, Richard Quest, I thank you.

Ali Velshi, I'm sure you agree that we're all looking for confidence for those numbers in that building to improve. But it is sort of interesting, and I think you pointed this out earlier so astutely, it's this odd juxtaposition today between these frightening numbers you see there on the Big Board, but also you look at someplace like the U.S. Treasury and interest rates and that's faring pretty well.

VELSHI: Clearly what's happening here, Brooke, is it's this market -- and you remember this from a couple years ago where anything in any direction can affect this market disproportionately.

Christine Romans said something on Saturday when we were covering this. And I think it really bears repeating. I have seen it in a few other places and a few editorials, but I did hear it from Christine first. And she said, you know, what could make Monday's markets do well is that if on Sunday night, the administration, the Treasury, Republicans and Democrats from Congress all got together and say, hey, we heard you loud and clear. This charade was ridiculous about the debt ceiling.

The fact that we held the debt ceiling hostage and told the world that maybe we will pay, maybe we won't pay, it's all got to do with politics, unlike Europe where they have real structural problems. People keep saying we have structural problems in the United States. We absolutely do not, not when it comes to debts and deficits. We have political problems.

There's problem of political will. If everybody had gotten together and say, we understand this, we're going to get our AAA back, we're going to prove that this isn't accurate -- instead the left and the right, the White House surrogates, the Treasury, Republicans, Tea Parties, everybody blamed everybody, including blaming S&P.

You don't want to listen to S&P, don't listen to them. Moody's has a AAA rating. Fitch has a AAA rating. People do their own ratings. The problem is this was at least half about politics, the downgrade, and politics stood in the way of finding a solution to this.

If they had come out and said this isn't good, this is what we're going to do, we have heard the message, I think you would have seen a different result. People are just looking for leadership somewhere. They're looking to somebody to say, I got this under control. Here's a plan to go forward.

We can't even get -- you couldn't get Congress to agree on what color to paint the walls.

BALDWIN: Well, they come back to work in a couple of weeks. Got to assign that super committee, don't they?

(CROSSTALK)

VELSHI: Yes, that will work out well.

(LAUGHTER)

BALDWIN: The president mentioned maybe this downgrade will add a little bit of a sense of urgency. Maybe these men and women will compromise and cut.

(CROSSTALK)

BALDWIN: Everybody has read it a different way. It's the same tea leaves that are being read differently.

Conservatives are saying, see, we didn't cut enough. We don't have cuts that are coming soon enough. And liberals are saying, it's because the conservatives held out. I mean...

(CROSSTALK)

BALDWIN: So it's back and forth, back and forth.

(CROSSTALK)

QUEST: I have never seen a -- there's nothing more straightforward than a rating from a rating agency on a country's debt. It's not a complicated thing. I never -- I couldn't imagine that people could read this as differently as they do.

BALDWIN: Ali Velshi, you're a pretty smart guy. I look forward to the day that we do get to talk to you on a yacht.

(LAUGHTER)

BALDWIN: And do me a favor and stand by, because we're not going far from this story. We have got you standing by. We have got people all around the world here, CNN 24/7 global resources we plan to tap into. I thank you.

There's been some good news. It's nice to see here and say that. It's a three-letter word. We're going to talk about that with Ted Rowlands coming up live for me in Chicago.

Also, you know the president spoke from the State Dining Room earlier today. What is he saying about this downgrade and can we compromise in Washington? We will be right back.

(COMMERCIAL BREAK)

BALDWIN: Welcome back to the newsroom. Take a look at our team. We have got a superstar team, Ali Velshi, Alison Kosik, Dan Lothian, Ted Rowlands, Poppy Harlow all standing by, as we're 47 minutes away from the closing bell on Wall Street. We're tapping into every single one of our resources.

For the best articles online, go to CNNMoney.com.

And, Dan Lothian, I want to begin with you at the White House, because we heard from the president earlier speaking from the State Dining Room off the top, talking about S&P, talking about all this partisan bickering. But I understand Jay Carney in the daily briefing moments ago was asked a question about whether or not Congress could actually, hey, come back from vacation a couple weeks early. What was his response?

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: Well, his response is that essentially they don't have any control over what Congress does, that this is the way it's set up and that he wished that they could really prod Congress to come back. Certainly, that's something the president could request. But Congress has a way that it carries out its calendar.

And that's exactly what they're abiding by. But, certainly, there was from the president today a sense of urgency directed at Congress that now is the time. Put aside everything that has happened over the last several weeks and months and really work at coming together in a bipartisan way to attack the fiscal problem of this country.

(CROSSTALK)

BALDWIN: Dan, let me jump in. Forgive me, because we have just turned around that sound. Let's play the sound. This is from Jay Carney moments ago in the briefing. And then we will continue our conversation. Here's Jay Carney.

LOTHIAN: OK.

(BEGIN VIDEO CLIP)

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: The markets go up. The markets go down. We cannot -- we do not and cannot react precipitously in reaction to how the markets behave on a given day or week.

We did achieve, after an ugly process, a significant step forward in terms of deficit reduction. And that will be implemented. And then Congress will set up this select committee and that process will move forward.

And Congress will working with this president, we believe, in a bipartisan way take action to support job creation through the free trade agreements and the payroll tax cut extension of unemployment insurance and all those sorts of things.

(END VIDEO CLIP)

BALDWIN: So, Dan, he's saying, hey, we can't control Congress, we can't make them come back to work.

LOTHIAN: Right. That's essentially what he's saying.

There is a calendar, there is a way that Congress is structured and that is certainly what Congress is abiding by. But I think what the bigger point was from the White House today is, listen, there is a sense or there must be this sense of urgency now, a real need for there to be a bipartisan approach to attacking the fiscal problem of this country.

And, secondly, I think what you saw from the president was trying to reassure Americans that, yes, you might be skeptical about what has happened. You might not feel good about your own personal situation, but that things will eventually get better. At least, that was the message from the president, even as the stock market continued to fall.

BALDWIN: I know. We're watching the numbers, 394 down, number 11053 here.

As we continue this conversation, he did mention he was hopeful, Dan. But I want to play some of the president's remarks. These were the first remarks from Mr. Obama since the credit downgrade on Friday. And what he said was that no one certainly doubts the creditworthiness of our country, but they do doubt, is the will in Washington to make these tough decisions to let the debt down? Let's listen to the president.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: So it's not a lack of plans or policies that is the problem here. It's a lack of political will in Washington. It's the insistence on drawing lines in the sand, a refusal to put what's best for the country ahead of self-interest or party of ideology. And that's what we need to change.

(END VIDEO CLIP)

BALDWIN: So, Dan Lothian, I realize he can't bring Congress back to work. But can he do this? Can the latest news suggest that the White House will press this super committee, this bipartisan committee of 12 to go bigger on debt reduction than the $1.2 trillion they are charged with finding?

LOTHIAN: Well, look, I think all arrows are certainly pointing in that direction.

That super committee, which is yet to be selected, a bipartisan group of 12 people, will be charged with as a floor cutting $1.5 trillion. It's clear now, at least based on what everyone is saying, that that number may just be the beginning. In fact, I asked Jay Carney if perhaps what the president will be pushing forward in terms of recommendations -- he talked about that today -- if that will be pretty much the grand bargain with a few tweaks.

And it's going to be all of the above. I mean, I think the president is going to look at what he was able to hammer out with Speaker Boehner, look at what the gang of six also was able to work out, that bipartisan group. And then that's what the president will be pushing. I think things changed from last week to this week where that may have been -- the $1.5 trillion may have been a ceiling. Right now it may be that starting point.

BALDWIN: Starting point at $1.2 trillion.

Dan Lothian, thank you so much from the White House.

I want to bring my colleague Ali Velshi back in from New York.

And, Ali, we were talking about U.S. Treasury, interest rates. I know we have Ted Rowlands in Chicago with a little more on that.

VELSHI: Yes. I'm taking a look at just -- I'm taking a look at commodities right now. And pretty much everything is down but for gold, which is up again.

Most commodities are down. Cotton is up a little bit.

Ted is at the Chicago Mercantile Exchange in Chicago, where these commodities get traded, where S&P futures get traded. You're in the only place on Earth right now, Ted, where money is actually going in. Money is coming out of every other market. Give me a sense of what's gone on with treasuries. The one thing that should have been hit hard by this downgrade didn't get hit hard.

TED ROWLANDS, CNN CORRESPONDENT: Yes.

On one level it's accurate. But people are saying, listen, this downgrade did one thing. It was another negative component into this fueling of the sell-off that we're seeing today. But as you have pointed out, what happens when you sell off? You have this money to park. Where are they parking it?

Well, they are parking it in treasuries because it's the only game in town in terms of a safe haven. People are selling because they heard of this downgrade possibly or at least it's a component. And then they're going around a circle and buying that same product which was downgraded because they think it's safe. They know it's safe.

And the bond market trading just ended here at the top of the hour. And investors, while they're surprised somewhat that the interest levels are not going to go up, they say it makes absolute sense because people still trust the U.S. government. They know they're going to pay and as you have pointed out, it's really the only place to park your money.

VELSHI: You're also on one of the most active -- the most active trading floor in the United States, probably in the Western world. I know you were talking to people. Was there some sense of how this day turned out? What were the traders down there saying about this downgrade and the effect it's going to have?

ROWLANDS: Well, they were -- the downgrade, like I said, most traders believe it is a small component in an already battered mood, if you will.

VELSHI: Right.

ROWLANDS: And it was a catalyst to kick this sell-off today. People were looking at the numbers. As you know, they get to certain levels and it can go from a sort of periodic slowdown to a freefall. And that was a big concern which we saw a little bit of it when it got down to 600.

People here are looking at the reality that the Treasury market is not going to be a problem in terms of interest rates. That was a big concern after the rating drop. People thought, oh, my car loan is going to go up or this loan because you're going to see an interest rate hike. Clearly today, we know that that is not going to happen, at least in the short term.

VELSHI: All right, Ted, thank you for that.

Brooke, Ted is not given to overstatement. So when he said treasuries are the only game in town, bonds are the only game in town, at the moment they're the only game in the world, he's exactly right. The way he categorized this was perfect. So the downgrade comes. People say I better take my money out of these things. They go everywhere in the world, into stock markets, into commodities, into everything.

They look at everything around the world and they end up right back where they started because in the end, in this uncertain world we're in, believe it or not, even a downgraded U.S. Treasury is a safer investment than much of what else is out there.

BALDWIN: Also, Ali, if I may add one more layer of positivity, aren't oil futures traded at that exchange? And oil is looking pretty good.

(CROSSTALK)

VELSHI: Oil gets traded at the other most exciting place in the world, which is right here in New York, the New York Mercantile Exchange. NYMEX, but way down. You're absolutely right.

(CROSSTALK)

BALDWIN: Way down, which is great news for all of us.

(CROSSTALK)

VELSHI: They're down as much, if not more, than the stock markets today. I checked, it was over 4 percent lower.

BALDWIN: Wow. VELSHI: So, yes, that in theory should lower gas prices, which you know, Brooke, is basically like a tax cut, right? Because a tank of gas, you buy the same amount of it all the time and if you pay less for it, that's money that you can spend somewhere else. So some weird things going on here. We're fixated on the stock market. It may not be the most serious.

And by the way, it's quite an interesting day where the Dow is down 390 points and I'm telling you that it's substantially better than it was an hour-and-a-half ago.

BALDWIN: It's all about perspective, isn't it, Ali Velshi.

VELSHI: Yes.

BALDWIN: Ali, thank you. Stand by for me.

Our colleague Poppy Harlow is also standing by. And I'm told she just scored a pretty interesting interview with a trader at the New York Stock Exchange who had a story to tell about the moment the president spoke today from the White House. And perhaps that may tie into things. More CNN NEWSROOM as we roll on.

Look at the markets, Dow down 397 points. We're back in a moment.

(COMMERCIAL BREAK)

BALDWIN: Welcome back to the NEWSROOM. We're not going too far from the story there at the New York Stock Exchange. The Dow down 385 points. We're 35 minutes away from the closing bell. I have my colleague Ali Velshi helping me out this afternoon live from New York. Ali, I appreciate it.

For now, I do want to go to Poppy Harlow with CNNMoney.com.

And, Poppy, I understand you interviewed a trader today who had some perspective on the moment the president spoke. What did he say?

POPPY HARLOW, CNN CORRESPONDENT: That's right.

I talked to two critical people one a New York Stock Exchange trader -- you might remember him, Brooke -- Teddy Weisberg. You talked to him last week when we saw that precipitous fall on Thursday, been on the floor more than 43 years.

(CROSSTALK)

HARLOW: And also a chief investment strategist at Standard & Poor's. We will get to him in a minute.

But let's talk about what the New York Stock Exchange trader told me. And he said, Brooke -- remember the president spoke about an hour or so ago. He said as soon as President Obama stopped talking, the market tanked 1,250 points. This is when the Dow fell 604 points. And I said, are you really relating the two? Do you think they're combined? He said absolutely. He told me I and the traders on this floor did not hear anything different than we usually hear from this administration. He said it was very similar to back in 2008, that sort of feeling of chaos in the winter of 2008, the beginning of the president's term. The message that the Street wanted to hear, that the market did not hear is that there is confidence and that there is direction.

He said, we didn't hear any specifics. That's what we wanted to hear. The market didn't get a sense of confidence that anything is different. He said, why didn't the president call Congress back to work? Of course, you played sound from Jay Carney earlier, saying, look, we can't tell them when to come back here.

But that, it sounds like, is what the marketed wanted. And then -- and moving to Sam Stovall, he's the chief investment strategist for Standard & Poor's, I -- want to know separate from the rating agency Standard & Poor's, same overall company, but a totally separate division.

But this is a guy who manages people's money from pensions to your investments. He sees the market as average investors see the market. And he said, what happened after President Obama gave those remarks on the overall economy and on the downgrade, he said what was critical was it was about what the president did not say. He said what investors wanted to hear was that there is some sort of safety net out there, that there is some plan. They wanted some leadership from Washington. They feel like they didn't see it.

So you have two sides here. You have got the average investor side, someone that is looking over your 401(k) and then you also have the New York Stock Exchange trader mentality and they're both sending the same message here. Nice that we have rebounded, we're no longer down 600 points, but we're still down very steeply. We're still right now second worst day we have seen since the financial crisis for stocks, and the market hasn't even closed yet, Brooke.

BALDWIN: Yes. That is interesting that Teddy Weisberg was willing to connect what we saw in 2008 with regard to the president speaking to now. I know last week he was very hesitant in doing that, saying that it's a different time period. So that's significant for me to hear coming from a 43-year veteran trader.

Let me ask you this, Poppy. What fundamentals in the economy are scaring investors now, would you say?

HARLOW: So this is another thing that Teddy and I spoke about. And it's the fact that keeps coming up. A week-and-a-half ago or so, we got this horrible GDP report that showed us that the economy is growing a lot slower than we thought.

Now, the reason that's still important -- and Ali keeps making this point -- is that the stock market is a reflection of how companies that are traded there, Citigroup, ExxonMobil, General Electric, how they're doing.

And when you just look at their numbers, right now, they're very strong. But because the GDP report that we got recently was so bad, it's causing everyone to revise their numbers downwards for the second half of the year, saying the outlook isn't going to be so rosy overall for the economy, Americans' ability to spend isn't going to be as great as it was before. Ultimately, that will weigh on the companies that are traded in this market.

That's how you can reflect and really bring together the fundamentals of the economy and how these companies are trading. Their numbers may be good now, but the outlook that many have is that they won't be good in the long term. Another expert that I was speaking with on this, this morning, Brooke, had the interesting point that ultimately, you're not going to see that strong consumer spending that we need that makes up 70 percent of our economy because people are de-levering at home.

Just like this country is trying to get out of debt, individuals are trying to get out of debt. You at home watching may be in this situation. As you try to save more, you're ultimately going to spend less. And that may be good for your bottom line and your pocketbook. It's not good for this economy.

BALDWIN: Yes. People are nervous. The confidence isn't there, as Ali and I were mentioning. And some people are panicking. Poppy Harlow, thank you.

And, Ali Velshi, to you. Some people may be panicking. Investors are clearly panicking. I feel like the word we keep using over and over is volatility and irrationality.

But I'll tell you what. I guess it's a good time if you want in, if you want to buy, huh?

VELSHI: I would be day-trading right now.

If you have got the stomach for this, it is not a straight-down market. Look at that chart. It goes down; then it goes up. Then it goes down. Then it goes up.

If you know things about how stocks are priced and which ones -- look, every day, there are 30 stocks on the Dow that are all down. P&G I think was up. Generally speaking stocks don't move in unison, right. There's a reason why x stock will get hit instead of y, because it's weaker on certain things. You can make money on this. If you cost average and get in, ultimately, when you go up, you'll make money.

That argument falls flat on a lot of people now because what happens is the momentum comes in, anybody looking at the screen is going to sit there and say my 401(k). High my IRA just took a hit. And something they're about to buy doesn't get bought because they're feeling flush.

Alison is at the exchange, the last 29 minutes of trading, Alison. You know, Brooke pointed out that Teddy Weisberg. He's starting to think that some of this looks a little bit like some of the days in 2008. What are the traders telling you? ALISON KOSIK, CNNMONEY.COM: They're telling me that they're concerned, Ali. They're concerned because they don't know what this downgrade, that S&P did on Friday. What it really means in the long- term. You know, they're looking at today's selloff as just a day. It was kind of expected but they are truly worried about what's going to happen in the future.

I think what you're also seeing is what I explained before is a lot of that program selling, the big institutional components, those hedge funds and those mutual funds, they're selling today, something we didn't see last week that we're seeing today. Last week is more about the individual seller getting out there and running for the exits.

I think now you're seeing -- that's why you're seeing huge spikes in trading, these 100-points turns, because the institutional investors are getting into the fray because there is concern about the long-term ramifications of this downgrade, Ali.

VELSHI: They're a calm bunch. I think you would agree with me, they're not in panic mode. But the traders have seen a lot. They're not panicking.

KOSIK: No. They're not panicking. But make no bones about it, they are very concerned.

VELSHI: Yes.

KOSIK: A lot of what Poppy said is true. They were really looking to that speech to find some sort of nugget to take away to show calm to the market. They did not find that. And they directly attribute the plunge that we saw as soon as the president got off the air is attributed to what he didn't say in his speech.

VELSHI: Yes. Thanks for that, Alison. We're going to obviously stay close to you. And Richard is just outside the exchange. Brooke, you remember that the worst of the financial crisis was in the fall of 2008 and beginning of 2009.

BROOKE BALDWIN, CNN ANCHOR: Yes.

VELSHI: Remember in the spring of 2008, when things were starting to look bad, you would see on a very regular basis, you would see President Bush and you would see Treasury Secretary Hank Paulson coming out and making speeches, and the same thing would happen. The markets wouldn't react well. Investors don't typically get what they want out of a speech Washington.

I think the speech today -- I think he was out there to calm the public down, to say hold on guys, there's a big sign -- in my perfect world, when I run a network, I'm going to have charts like that, that size of a chart for all the things you should know in your financial live that are important. I would show you that while that stock market is down, bond prices, bond interest rate is down too, so the two weigh against each other. But while we have a scary chart there, it tends to work on the psyche. And I bet you some people logged on and called their financial advisor and said get me out of this market. I don't have the stomach for it.

BALDWIN: So much of this is psychological. We talk about the fear index and the VICS is up for sure for sure. If you own a home, you're worried about the value of your home right now. But as we've been talking, interest rates they are still low.

VELSHI: Yes.

BALDWIN: And so that's one positive slice of this whole economic pie, if I may. I know we have Allan Chernoff sort of covering that for us. We'll get to Allan after the break. The Dow is down 519 points. We are just about 26 minutes away from the closing bell. Ali Velshi and I will be right back. Stay here.

(COMMERCIAL BREAK)

VELSHI: I'm Ali Velshi. My friend Brooke Baldwin there in Atlanta. We are following the last 23 minutes of trading right now. The question on a lot of people's mind other than the obvious, what's going on with the stock market, is what does this mean for the cost of credit? We know there's been a credit downgrade. What does that do to the cost of buying a house? We were just chatting about that.

Brooke, Allan Chernoff is here with me in New York. He's been looking at this. Allan, the good news is that it's been cheap, it's been cheaper in the last few months to get a mortgage. And the place where the mortgages are financed, at least today, didn't become more expensive.

ALLAN CHERNOFF, CNN CORRESPONDENT: Ali, this is one fear that's not being realized in the marketplace today. The downgrading of Fannie Mae and Freddie Mac led to worries that mortgage rates could shoot up. But what we're seeing today in the marketplace is actually the opposite is happening.

Now, Fannie Mae and Freddie Mac are extremely important. These government sponsored entities buy mortgages from banks and thereby allow the banks to receive more cash to make more mortgages. So they're essential. You would think that mortgage rates would shoot up.

But a more important factor is happening right now. That rush into treasury bonds, into treasury securities. Keep in mind, the mortgage rate, the 30-year fixed mortgage rate is tied to the 10-year rate. We've got a graphic here. Have a look at this. I'm calling the treasury bonds essentially the eye of the storm. People are rushing into them. So prices are up. Rates are down.

The fixed-year mortgage right now, tied to the 10-year treasury, it's at the moment at 4.5 percent. That rate is actually going to be headed down as a result of the fact that those t-notes are going to go down in terms of the yield.

In terms of the adjustable rate mortgages, the same inning is happening. Right now they're at 3.2 percent for a five-year arm. That rate is even going lower. It may not hold for a very long time. But at the moment, we're seeing lower and lower rates as a result of people rushing in to government securities.

VELSHI: Allan, explain this to me. I've tried to sort of say it, but I think we need as many analogies or comparisons as we can to understand this. If I'm the U.S. government and I just got downgraded, it should be obvious to everybody in the thinking world that it should cost me more to borrow money. Why is it not costing the U.S. more to borrow money today?

CHERNOFF: That's if you have more faith in Standard & Poor's than you have faith in the United States government. But the fact is, in spite of the downgrades, the full faith in credit of the United States still does indeed have meaning. Investors see government bonds as a relative safe-haven, particularly when they see the stock market plunging the way it is.

As a result, they're rushing into the bonds. When they buy bonds, the interest rates move in the opposite direction, prices up, interest rates down. That carries over to your mortgage, a sliver of good news on this otherwise horrific day.

VELSHI: All right, Allan, thank you for that. This is definitely, Brooke, one of the major, major concerns of people out there, the idea that interest rates are going up. I know that there are a lot of our viewers who are very sophisticated about this and fully realize it. But even people who work in the markets and study this and report on it al the time can find this a little perplexing, that the interest rate is not going up as a result of a downgrade.

Again, Brooke I don't want to speculate too early on into this game what's going to happen with interest rates. I think most experts and economists and Allan will tell you that the expectation is that over time, these are record low interest rates and they are likely to go up over time, which is why a lot of advisors advise you to take a fixed rate mortgage at these levels. But the bottom line is, certainly not happening today.

BALDWIN: It's vexing.

VELSHI: It is.

BALDWIN: Ali Velshi, thank you so much. A quick check of the boards -- the Dow down 510 points. We are 20 minutes away from the end of this trading day, the first full trading day since the S&P downgrade to a AA-plus. We've got Ali Velshi standing by, Allan Chernoff, Ted Rowlands, Alison Kosik, Poppy Harlow, and my new colleague Erin Burnett. She is standing by live for me as our chief business correspondent in New York. She will help provide some of her own characterizations of the market moves and what we do going forward tangibly speaking. Erin, stand by. We've got to get a break in. Dow down 511. Back in a moment.

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BALDWIN: Welcome back to the newsroom. Breaking news here as we continue to watch the markets here. We have next to me, Ali Velshi and CNN anchor Erin Burnett here as we watch the markets. Guys, flash up the big board one more time before I begin my conversation wither Erin. We'll take a look at where the Dow is at this moment. Here it is. It is down 549 points there. Off and on, we are 15 minutes away from the end of the trading day, the closing bell. We'll continue all of this coverage live.

I want to go to you Erin Burnett -- by the way, nice to meet you, and welcome to you, to CNN.

ERIN BURNETT, CNN ANCHOR: Thank you. I wish it was under better circumstances.

BALDWIN: I know. Welcome. Again, we're again in the red here in terms of the New York stock Exchange. Let me, help put this in perspective. Ali and I were having a conversation about this. His word was irrationality. How would you characterize the market moves and what does the market need tangibly to stabilize?

BURNETT: It's a really interesting question. I was thinking about it today when watching the market. It was throughout the day we've seen this. I know we had a little bit of a run at a recovery. Now back down below 500.

It made me think about two points in time. One was the fall of 2008 where sitting at the New York stock Exchange. Every day we had these incredible rollercoaster rides, 700-plus point moves that were very full of panic. And then last year, you remember the flash crash. And this is so different than that. Take a look at today. The flash crash, just a year ago, we had Procter & Gamble drop 36 percent in just a few moments. This was just a collapse in the system.

Today is a much more steady - sure, there is panic, but a much more steady selling day. Proctor and Gamble is only down 1.4 percent. So this is the real deal, the selloff. It's not a mistake. It's not necessarily panic.

But as Ali said, you're obviously seeing a lot of regular people throwing in the towel and say they want to get out of this market. A lot of the biggest investors, though, have been pulling the numbers, Brooke. And they're saying if you look at other economies that have lost this top rating and look at them over the next year, on average their stock markets go up. So there's a precedent that could be positive. But it really is going to come down to what happens with our economy, much more important than the credit rating.

BALDWIN: Well, you mentioned the regular folks, and that includes us, we have 401(k)'s. We have money in the stock market, and hopefully our 401(k)s are diversified. But what advice, I don't want to put you in the position to give advice, but overall, is this really a time to panic? Because if I'm sitting there with a lot of money in the market, I'm panicking.

BURNETT: I can't blame you. About half of American households own stocks. Ali has been talking about the AIG, Bank of America situation. Today Bank of America is one of the most widely held stocks in America if you look at your pension plan or anything like that. Yes, you would see a lot of people panic. It's at moments like this, though, Brooke that you see a lot of the smaller investors runaway when the big investors will be ready to put money down. If you look at analysis today, there are only seven other periods in American stock market history according to Paul Hickey where stocks have been more oversold.

As we're careful to say, just because it's cheap doesn't mean it can't go down further before it actually goes up. But on a purely technical basis, a lot of people would say this market is very nervous and those are the moments where it overreacts. So that's not to say the same thing as go out and buy. A lot of investors will do that.

VELSHI: Erin?

BURNETT: Yes, Ali.

VELSHI: I want to let you know what's going on. We've hit new lows on the Dow. We're getting back to -- we've gained a little bit there, but we took a big drop off. Erin will know from her long experience working at the stock market, this often happens in the final minutes of trading. There are some people thinking this is an opportunity at this point, and they're basically doing battles with those who want to get out of their positions.

And every time people start buying into the market, Brooke, what happens is stock values go up and somebody else who was thinking they really wanted to get out sells their stock. So this sort of last minute trading is always what we look at. And the momentum going into the closing bell, Erin, does say a lot about what we're going to see later tonight in Asian markets and tomorrow. If we stem the momentum, this might be the worst of it. If we don't, we have another busy day tomorrow.

BURNETT: And Brooke, it's interesting. When you look at the close, there's been an incredible aversion among the big investors out there to hold stocks overnight. And that's because, as Ali said, it's a global market. Now you're going to hand it over to the Asian markets in a few hours after hours close. Theirs will open again.

And people are still worried about some sort of an event happening where they see another drop down. They don't want to go to the end of the market buying. They would rather buy at the open than buy at the close.

So that's why you tend to see over the past couple of weeks, it's been one of the most negative characteristics, this lack of people jumping in to buy when the market closes.

BALDWIN: I know that the Dow hasn't closed below the 11,000 mark since October 19 of last year. But here's my question to you, Erin Burnett. I was sitting in this same spot last Thursday and Friday and we saw the market whiplash, if you will. Thursday the Dow closed down 512 points. Friday we saw all the same sort of back and forth, but it closed up 60. I'm just confused. What is the tipping point to make a market close so far down or in the green? BURNETT: Well, I guess it goes to show investors are well, purely or -- they're human, right? They get nervous and scared. That's what you're seeing now. Like I said, it doesn't mean it's going to go up because it's oversold.

But these are the moments. J.P. Morgan, I thought, I have it next to me, did some great analysis today where they really looked at how the stock markets in countries that had lost that coveted AAA rating performed and a year after all of them lost it, all but one were up by about 12 percent. So that's not necessarily great. It doesn't mean we'll go the same way. But that is just a good thing to look at.

As everyone said, a lot sense this is a symbolic downgrade. It's more that what it did was force us to look in the mirror. And sometimes you look the in mirror and you don't like what you see. And it's forcing us to see a lot of the ugly things about the borrowing and debt. And not news to anybody, but that's what people are frustrated in dealing with today.

If we're saying the economy really matters, a lot of analysis out of the big investment banks today is noting -- and we're halfway through the third quarter here. If we're starting to look at what we're seeing there, the economic data has been much better according to their analysis including jobs, than it had in the second quarter. And that ultimately is going to be more important than the downgrade when it comes to determining where stocks go.

BALDWIN: We saw the jobs numbers Friday. We added 117,000 new jobs. That was certainly positive. Maybe that was part of the reason we say the markets closing up 60 points. But as you mentioned, so many different factors. Everyone is human, buying, selling, et cetera. This is an alarming late-day selloff. Dow is down 593. You can always read the latest numbers. Go to CNN.com as you sit and you watch us. Erin Burnett, stand by. Ali Velshi, stand buy. We're back in a moment.

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BALDWIN: Breaking news here in the CNN Newsroom. We are six minutes away from the closing bell there on Wall Street. Ali Velshi, Erin Burnett both standing by. Also, I have Jay Louve (ph). He is good enough to join me again from San Francisco. He's a mutual fund manager to give us a bit of advice if any of you have your hearts in your throats looking at these numbers. But Ali, as we're in the final moments, what's your read, reflections, moments before this bell?

VELSHI: Oh, me?

BALDWIN: You, you, go.

VELSHI: My reflection is I'm looking at that number, 10,891. I'm looking for 10,812. That's the low of the market. If we penetrate that as we go into the closing bell, then we have the impression this selling isn't done and this is isn't the end of what started last night in Asia. If we're still charging through into lower numbers then I've got to worry about what we're doing at 8:00 tonight and what we're looking at overnight and whether we have another rough day tomorrow.

If we start in the next few minutes to see that number go higher, that 10,883 go higher, there might be some sense we've broken some of the momentum. It's a technical thing, but in the last five minutes of trading, that's pretty much all you can do. We've offered the psychological and fundamental analysis we can. At this point, we're waiting to see what the traders and what the computers do in the last few minutes of trading.

BALDWIN: Ali, let me ask you though. So we're looking for 10,812, because the last time we saw that was when?

VELSHI: It was just moments ago.

BALDWIN: That was the low of the day?

VELSHI: It was about ten minutes ago. That was the low of the day, exactly. And again, we're looking at a 4.86 percent drop on the Dow. That's 30 companies. The S&P 500 is what's reflected in your 401(k) and your mutual funds. The losses are substantially higher than they are if the Dow. So in a few minutes I'll calculate where we stand on all of this. But these are not -- you know, this is half the loss or gain that you could take in an average year in the stock market in one day.

BALDWIN: And Erin Burnett, let me bring you in, as you very well know, these numbers not just reflecting what's happening in Washington and all the partisan bickering, but also in Europe. You look at countries like Greece and Italy. You look at Spain. Fears of default very much so pervasive in the numbers with we're looking at here in New York.

BURNETT: It's true. And I think when you look at our numbers, I that's what a lot of people are worried about. Not to say that all the worries aren't justified, because they are in so many ways. We have a debt problem in this country.

But Brooke, when you think about it, it is true that we can't default so long as the dollar is still the king currency of the world and it is. That's why we have the ability to print money and pay our debts. We may not like that solution, but we do. There is no danger the U.S. is going to default. I think that's important just to emphasize for people who are justifiably concerned watching what's happening today. There is no chance that is going to happen in this scenario.

BALDWIN: Three minutes away from the closing bell. Let's talk about, Erin, who owns our debt. You have China, you have Japan, you have the U.K. Who else?

BURNETT: Well, it's interesting, China, Japan, the U.K. You have the oil exporters. Why? Because they sell oil, a lot of it to the United States. Oil trades in dollars, that means they have dollars. And just like China, where do you put dollars? You put them in U.S. treasuries because that's the main place to put them.

So those are the big owners. And if you want to determine whether our interest rates are going to go up, you have got to say are any of those holders of treasuries going to choose to sell them. And the answer to that is not likely. You look at China, they're the ones grumbling and complaining about the United States. They're the single biggest holder of treasuries. I'm looking at their holdings over the past year, almost every month there has been an increase.

So it's not even that they've been holding flat. They've been increasing their holdings. If they were to change that, we could see a dramatic rise in interest rates. But we have not seen that so far. If we really want to see this in our own hands, obviously, Brooke, the thing to do would be buy a lot more treasuries ourselves, have American households buy them, because America, after all, has its own best interest at heart.

BALDWIN: Hasn't that always traditionally be held as the safe bet, you put money in a treasury bond and it's traditionally a safe way to put your money, put your savings?

BURNETT: Yes, it is still a safe place to put your money. What's interesting, though, you look in Japan, 95 percent of Japanese debt is held by Japanese investors. Their debt is rated lower than ours but their interest rates are still lower than hours because their economy, frankly, has been in a recession for decades. So if we wanted to change this, we would buy a lit bit more of our own debt and have that become something in vogue again and perhaps a more patriotic thing to do.

BALDWIN: OK, Erin, Ali, Ali Velshi, you mentioned the number 10,812. We're creeping precipitously closely.

VELSHI: The good news is we're above it. That's helping me. I need two calculations to get a sense of how this is ending. The one I don't have just yet, and that's the volume in this market. The combination of the volume and velocity gives you a sense whether there's a break in the momentum.

This bell is still a minute away before it rings. At this point at 5.35 percent, that loss is the biggest loss since November 20 of 2008. You'll recall back then in the fall of 2008, as Erin said, those were dark days for us --

BALDWIN: Remind us.

BURNETT: That was right -- it was between September 14 when Lehman Brothers collapsed and October 3 when TARP was finally approved. Those three weeks were the worst of it. But beyond that, we started -- and those were massive, mass I have losses in the stock market. Then things started to level off a lit bit.

By November 20, remember it was after the election, there was still a lot of panic. The talk of a stimulus had already set in. We were still very uncertain. On that day, on November 20, we closed 5.56 percent lower on the Dow. So it's been a long time since we had -- I mean, two in a weekdays like this? This is very, very unusual for us.

Bottom line is we are now very close to that 10,812. It will take a few minutes because it's a busy trading day after that bell rings to start to settle, but the bell will ring in one second.

BALDWIN: Let's listen.

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