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Interview with Rep. Phil Gingrey; Dow Closes Down 634 Points; London Suburb Burns as Riots Rage; Bodies of U.S. Troops Returning
Aired August 08, 2011 - 16:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(BELL RINGING)
BROOKE BALDWIN, CNN ANCHOR: Here we go, top of the hour, breaking news here on CNN.
You're watching and you just heard the closing bell on Wall Street. This was the first full day of trading since the S&P downgrade, down from that perfect AAA now to a AA-plus. That happening Friday night. And now, as we see the markets responding for this first day, again,the numbers, as Ali pointed out, it still takes a number of minutes for the numbers there on the Big Board to settle, but you can see the Dow down 630 points, right around 10814.
So, Ali Velshi, I know these numbers continue to change, but you mentioned the lowest we had today 10812. And the last time we saw just a drop on the Dow was November 2008, a time none of us would like to return to.
ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Yes, and we're pretty much there at this point, the 10812. We will see how it settles, if it goes the wrong way.
I got to tell you, When I woke up this morning, this is not what I expected to see. There's no good news in this. By my rough calculation, we're looking at -- this is definitely one of the top 10 worst performing days in the Dow from a percentage.
And I always calculate these percentages because that's how you calculate your 401(k) and your IRA. We're looking at a -- there we are. We at the low of the market now. It's never good news when you close at the low of the market, because what that means is we have to look at what happens overnight on Asian markets to see whether this selling continues.
So we have got that drop on the Dow. And just taking a look at the S&P 500, the drop is more significant than that on the S&P 500. So if you log into your 401(k) or IRA, you will have taken a bigger loss than what you're actually looking at right now. We're waiting for that to settle, but it looks like it's 5.8 percent on the Dow, and it looks like we're setting -- on the S&P 500 -- it looks like we're settling right at the low of the market.
Again, bad, bad news, Brooke. But here's the thing, still a little bit irrational. You can't really call markets irrational, because they are what they are, right? A stock is what somebody will pay for it. But this downgrade was supposed to have an effect on debt markets, on credit, on the cost of borrowing for the United States.
It's not had -- it's in fact had the opposite affect on that, on the debt market, which tends to be more sophisticated than the stock market. But the stock market is a stock market. People didn't believe it again today. And you go. You're closing at the lows of the market.
BALDWIN: Not what you wanted to see, Ali Velshi, not what I wanted to see.
Let's go to Erin Burnett.
What is your read here, Erin? Down 632 points as it continues to settle. I mean, this is all -- this is echoes from 2008.
ERIN BURNETT, CNN CORRESPONDENT: It is. And it's bringing back memories none of us like, as you said, at least now I guess all eyes not only go on Asia overnight, but what is going to happen tomorrow because you're going to have a regularly scheduled meeting of the Fed. Talk about timing, Brooke and Ali, right?
You have got Ben Bernanke going to have to come out. Now, we all know he's giving those periodic press conferences on the back of interest rate decisions. We're not getting one of those tomorrow. At least it's not scheduled.
But that statement that goes along with the interest rate decision could be significant. You don't want to see policy-makers, whether at the Fed or in Washington, jump too quickly to react to something like this, because if it's panic, you want the market to get on its feet on its own, right? If you see authority jump too quickly to try to fix the problem that in and of itself could hurt confidence.
I'm not exactly sure whether you would want to see anything tomorrow. But this is the kind of day where if the Fed was going to do something extraordinary, in terms of extraordinary measures, or some sort of aid to the market, you would perhaps see that tomorrow, because everybody will be watching that statement, which comes at around 2:15 Eastern time. They could do something before the market opens, Brooke, or after that statement comes out tomorrow afternoon.
BALDWIN: I think it's important, Erin, also to just back up here as we're at the top of the hour and I think a lot of experts, a lot of economists predicted that we would see this downgrade. You had broken the news, what, a couple of weeks ago from the S&P that they were -- we were in potentially negative territory.
And now we have this AA-plus rating. Explain to us why that's significant. Who looks at the Moody's, Fitch, S&P?
BURNETT: It's a tough -- it's a double-edged question because in a sense I could say, Brooke, that nobody looks at them, because as we all know they all got a lot wrong during the mortgage crisis so they have been very discredited.
However, they still are the standard when it comes to evaluating the ability of a company or a country to pay back its borrowers. And that's essentially what this rating means. The highest rating means you are going to pay it back and as the rating goes lower, there's a higher risk that you won't pay it back and usually in exchange for that, you pay a little bit higher rate of interest in order to borrow.
So this downgrade theoretically would mean our interest rates go up. And obviously they haven't. They went down. And the reason for that is that we are going to pay the money back. In a sense, this is a symbolic downgrade more than anything else. Because everything is denominated in dollars. So that's an important thing to keep in mind.
We're not going to default, as I have been emphasizing, but this is a big wakeup call for us. And right now you're seeing rates go down, because when people are afraid, they sell stocks. We saw. They sell everything, right? Well, you have got to put that money somewhere. And as Ali has been saying, that place is still U.S. treasuries. We have seen interest rates go down for the United States today, which seems a bit counterintuitive, but that's why we have seen that. It's not something that you can expect to last forever.
BALDWIN: So let's just take this another step forward. Because we realize that this downgrade, this AA-plus, is unprecedented, right? We know that. We also don't know ultimately what the full impact of this downgrade will be, but from what I read today, that this also means that hundreds of downgrades are coming as a result of S&P's action, including government-backed mortgage financiers Fannie and Freddie, some municipalities, some insurances.
BURNETT: That's right.
BALDWIN: How does that affect us Americans?
BURNETT: So about 75 percent of all the top rated, which would be AAA-rated debt in the world is linked to the U.S. government. And that means not just treasuries, but also Fannie Mae and Freddie Mac and other entities like that which we refer to as government agencies.
So that -- or agency debt. So three-quarters of the debt is linked to that. So you will see all of that downgraded. So that's why the Fannie and Freddie was very much expected. Those companies are linked directly to the U.S. government. If the government got downgraded, just by virtue of being consistent they need to be downgraded as well.
You could see some other downgrades with individual securities backed by treasuries, but it's unlikely, at least according to analysis I have seen from the like of J.P. Morgan that we're going to see a tsunami of those sorts of downgrades, but ironically, we're now in a position where you have some companies in the United States, like Microsoft, Johnson & Johnson that are now rated as better managed and with better assets than the United States itself, which is an ironic situation.
BALDWIN: Erin Burnett, I want you to join me in this next interview because I have a feeling you have some pretty smart questions for Jay Leupp, who I have been talking to for the last couple of days, who is a senior portfolio manager and president of Grubb & Ellis U.S. Reality Income Fund.
Ali Velshi, you jump in as well.
But, Jay, let's just begin with a point you made with me last week. And we watch the market it's down 634 points. You made this point, look, when the market zigs, as an investor, you're supposed to zag. Do you still stand by that?
JAY LEUPP, PRESIDENT, GRUBB & ELLIS: I do.
I think that it's very counterintuitive, but really the best time to be selling stocks or other investments is when the market feels best. When valuations are high, when the outlook looks like it's just going to get even better, oftentimes that's a good time to take some chips off the table, sell some your ideas that are trading at high valuations and put some cash in your back pocket to take advantage of times like we saw on Thursday, like we saw on Friday and like we are seeing today.
We're seeing great valuations now. And to reiterate what Erin was saying earlier, despite this downgrade which really was telegraphed for several weeks, there's really no risk of the U.S. defaulting on its debt. In theory, it should make it more expensive. The opposite is actually happening right now, which is not unusual when the equity market sells off. It's time to really sit down, focus on your best ideas and take advantage of very attractive valuations that we're seeing today.
BALDWIN: Ali, Erin, either of you have a question for Jay?
VELSHI: Jay, here's my question. I'm of the same mind as you. At some point to the average viewer out there who is looking at us, saying tell me why that makes more sense than just getting out of this market and waiting until we find a bottom on it. I know that means you hold your losses in there and I know that it means that you wait too long to get back in and those are always my argument which is why it's just easier not to get out because it does ride itself back out.
But what do you say to people who are saying it doesn't make sense, I don't want to sit here and watch this happening, it's upsetting my stomach and it's stopping me from sleeping?
LEUPP: Sure, and again it goes back to really selling at the wrong time is -- when it's the most painful, that's truly and almost always the best time to actually be buying stocks as opposed to selling.
It hurts, don't get me wrong. I mean, we manage three mutual funds and obviously they're down on days like today, but these quite often and history really justifies this, these quite often are the best times to be buying.
I would say to your viewers that keep some cash on the sidelines as much as you can and leg into these investments. Leg into your best ideas. By a 10 percent or 20 percent of a total position on one day and do it again for the next two or three or four days so that you're not fully invested and you still have actually some cash to use to take advantage of your best ideas on a day like today.
BALDWIN: Erin, hop in.
BURNETT: I just wanted to ask you, Jay, obviously we get the Fed decision tomorrow.
LEUPP: Right.
BURNETT: And Ben Bernanke not scheduled to hold a press conference.
I'm curious as to your view. Should he just go business as usual, rates aren't going anywhere, stick with the plan? Or is tomorrow the day that he needs to announce further monetary easing, you know, in those extraordinary measures referred to as quantitative easing, where the Fed would come in and try to get involved?
Would that signal confidence to you or not? What do you want to happen tomorrow?
LEUPP: Well, Erin, it's a great question. I think we should see more than usual out of the Fed tomorrow with their statement, obviously given current markets conditions.
One is, I think they could make their own commentary on the U.S. government's ability to pay its debts. They are huge owners of treasuries as well. And buying treasuries is part of any quantitative easing program. I think also they should reiterate their view that they see a slower economy, but they don't foresee a recession in the near future. And I think that would also help calm investors as well.
BALDWIN: All right, Erin, thank you very much.
Ali Velshi, thank you.
Jay, thank you so much as always, as we're all sort of trying to figure out what to do. For those of us who certainly have invested and have our hearts in our throats looking at these numbers again here, again looking at down 634.
Jay, thank you so much.
Got to get a quick break in. CNN NEWSROOM, breaking news here of the markets down once again continues after this.
(COMMERCIAL BREAK)
BALDWIN: Welcome back to the CNN NEWSROOM as we continue the coverage of the markets, very much so in the red today. The last time we have seen them quite down this far was remember the time in the fall of 2008.
I have both chief business correspondents, both CNN anchors helping me along. We have Ali Velshi and Erin Burnett, both of whom are in New York.
But sitting next to me now, Congressman Phil Gingrey, Republican of Georgia.
And it's nice to have you here in person vs. always in Washington. Welcome to CNN.
REP. PHIL GINGREY (R), GEORGIA: Hi, Brooke. Great to see you.
BALDWIN: We have never quite seen a debt fight to raise the ceiling. And it's been raised many, many times in the past 60 years ago -- than we have recently. Do you think we would be in the same shape, though, as we are now with regard to markets and this S&P downgrade because of what we have seen Friday night? Would we be in a different spot?
GINGREY: No, I think the same thing would have occurred if we had not had this fight and we just went ahead and had a clean increase in the debt ceiling of the $2.4 trillion that the president really originally six months ago asked for, because Standard & Poor's had already said, look, you have got problems, $14.3 trillion worth of debt. You have had three straight budgets of $1.5 trillion worth of deficits.
You cannot sustain this. You have got $60 trillion unfunded liabilities in the Medicare and Social Security program. So you have got to do something. So I think that even though we came together and did the budget reduction act, and they said it was insufficient, it didn't reach the $4 trillion threshold -- I think, more importantly, they were downgrading us because -- well, they said it in the report -- they didn't have confidence that Washington could get its job done, could come together in a compromising way and get the job done.
(CROSSTALK)
BALDWIN: The president spoke today -- I'm sure you saw -- from the State Dining Room. I want to play just a little bit of that sound, as he led with the downgrading, the S&P downgrade off the top. We will talk on the other side.
(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: The ideologies, the drawing the lines in the sand, you work up there. You feel that?
GINGREY: Well, is he talking about the speck in my eye or the plank in his? Drawing lines in the sand -- I mean, the president had an opportunity to not raise taxes at a time when unemployment rate is 9.2 percent, 15 million or so out of work, 44 percent of them more than six months.
BALDWIN: But didn't Congress also have a chance to do that as well? GINGREY: Well, we did. There was an impasse. We sincerely believed that we don't tax too little in Washington. We spend too much. And the president felt a little bit different about that, so we did reach an impasse.
BALDWIN: A lot of people talk about how it was the Tea Party that held these negotiations hostages, and it was the issue with the revenue increases, with the tax increases, that that was part of the grand bargain when he had been talking to Mr. Boehner and also part of the gang of six solution, also with the Bowles-Simpson. It was all part of that. And therefore they could get that larger number in cuts.
Why not? Would you at all going forward, as they name the members of this super committee, be willing to compromise on that?
GINGREY: Well, Speaker Boehner told the Republican Conference, said the deal -- he said there was no deal until it was a deal. But what they were talking about was $800 billion worth of revenue enhancement, not tax increases, but tax code...
BALDWIN: Rewriting the tax code.
GINGREY: Absolutely, rewriting and cutting out a lot of these loopholes in, you know, big oil, ethanol, $6 billion here.
But then the president came back, maybe right after the gang of six issued their report, and said now we need another $400 billion. And that's when that broke apart. So who knows. I wasn't in the room. You weren't in the room, but I think it's time. Honestly, Brooke, I think we ought to go back.
(CROSSTALK)
BALDWIN: Would you go back early?
GINGREY: Absolutely.
BALDWIN: You would?
GINGREY: We have two to three weeks worth of work that we could do this August. We could open up the Marcellus shale. We could drill off the coast. We could solve our energy problem.
BALDWIN: What about this number...
GINGREY: We could -- repeal Dodd-Frank I think would be a big help.
BALDWIN: What about this number, $1.2 trillion? That's essentially what the super committee, the bipartisan, the 12 members of Congress, they're all be seated to this committee. And they're supposed to be cutting $1.2 trillion. Do you think that that should be the starting point and not the endgame?
GINGREY: I think it should be the starting point and not the endgame, because I was for Cut, Cap And Balance. And I was of the 66 members who voted against this budget reduction act of 2011 because it didn't go far enough.
The $1.2 trillion or $1.5 trillion added to the $900 billion comes far short of the $4 trillion that the Standard & Poor's rating agency asked for. And that is in Cut, Cap and Balance, that kind of cut, cutting the percentage of spending per GDP and getting that balanced budget amendment. We desperately need that. And you can't say it was the Tea Party that held us hostage. We held ourselves hostage.
BALDWIN: I want to yield to my colleague Erin Burnett, who has a question.
Erin, to you.
BURNETT: I just want to throw in one question, Brooke, as you're talking about what really happened here with the Tea Party.
Representative Gingrey, I'm curious, in terms of if we're really going to tackle issues in this country in terms of spending. Obviously entitlements are three-quarters of our future obligations. And we all know it, but going to your constituents and telling them you're not going to be able to retire for up to five years, you have to work five more years longer than you thought you would, the contributions the government is going to make to your Medicare are going to go down, your price indexing is going to change, are you supportive of all of the cuts that we're going to have to make in entitlements to really deal with this problem? Or are you in the camp where you're going to keep them off the table?
GINGREY: Erin, we absolutely have to address that.
And that's part of the reason we got downgraded. We have something like $62 trillion worth of unfunded liability going forward going forward to 2050 in the Medicare and Social Security programs.
You know, Paul Ryan was criticized, but he had the courage to at least put a budget out there. And we voted on it in the House. We passed it to look at the Medicare program and make some changes that would save it for our children and our grandchildren and to protect it for those who are currently on it or who will be in the next 10 years.
So, we protect Medicare as we know it, but we save it for the future. That's the bold kind of steps that we need to take on both sides of the aisle. And we need to do the same thing quite honestly with Social Security. But members, of course, this third rail of politics, you always worry about the next election, but we really should be -- I know it's trite to say -- but concerned about the next generation.
BALDWIN: Erin, thank you.
I do just want to end with this. We conducted a poll, CNN/Opinion Research poll. And here's what we asked. Do you think the bill treats all Americans fairly or do you think it benefits the rich at the expense of the poor and the middle class? The results you see there on the screen -- 62 percent say it benefits the rich.
Where do you fall? Do you fall in the 62 percent? GINGREY: No, I don't fall in the 62 percent.
I truly believe that the job creators, those people making $200,000 a year are the small business men and women that create the jobs and ultimately will help the middle class and the poor. You know, a rising tide lifts all boats and you have to start with job creation. We will never get there until we replace all these jobs that have been lost.
BALDWIN: Well, two items from you here today. You're willing to go back to work early and you think that $1.2 trillion should be the starting point.
Congressman Gingrey, good to have you here.
GINGREY: Brooke, thank you so much. And great to see you.
BALDWIN: Thank you.
And still to come, take a look at some of these pictures here we have been watching out of London, all this rioting. Today was the first day they actually had riots in the middle of the day, all of this stemming from this shooting of a father of four in a cab on Thursday. We will take you live to London right after this.
(COMMERCIAL BREAK)
BALDWIN: All right, welcome back here.
We're 24 minutes past the closing bell, but we're less than four hours now away from the opening of the markets both Asia and Australia.
Let me bring back Erin Burnett here, CNN anchor out of New York.
And, Erin, in, I know that Asia finished down today. Also Europe did as well. But looking ahead, 8:00 Eastern, when those markets open, what will you be looking for?
BURNETT: Well, it will be very interesting to see what happens in Asia overnight, whether they start to say this has just gone way too far too fast and you start to see a little bit stabilizing or not.
But I will say, Brooke, the next thing to really look, the next thing that really could change the mood is going to be what the Fed does tomorrow afternoon. And if there's anybody looking at all the TV screens right now saying I need to turn them off and just think about what to do, it's got to be Ben Bernanke, because the Fed will make that decision tomorrow.
And as your investor that you have been talking to over the past few days, Jay, was saying you have got to see, is the Fed going to come out tomorrow and say look, we're seeing the economy getting a little bit better, look, we're one of the largest holders of U.S. treasuries and we're not selling?
They don't have to go so far to announce even more efforts, but if they come out and say that, will that be enough? And everybody is really going to be looking for leadership. If from any one individual or one entity, it's going to be from the Fed tomorrow out of Washington at 2:15.
BALDWIN: OK. So perhaps a harbinger of things to come.
And speaking of things to come, Erin Burnett, it's Monday. I'm sitting here thinking it's Monday, the Dow is down 630 points. What am I to think about Tuesday, Wednesday, Thursday, Friday?
BURNETT: You try not to think about it, I guess, right? No, but this is again is where it comes into when will investors put their money where their mouths have been.
The biggest investors are saying this is overdone, this is oversold. And just to be clear, if you look at when this has happened before, the markets after a brief dip have tended to go up. And I'm talking about stocks. So will you start to see investors put money back in? A lot are looking today and saying that's exactly the right thing to do.
The question is whether they will actually throw that money in there tomorrow. But we are in a new period of volatility. I was just looking at a story that said markets fall 512 points. And I'm thinking, oh, that's right. That was just last week.
BALDWIN: Last Thursday.
BURNETT: We're in a period we haven't seen since the fall of 2008. Volatility surged today. That's just a measure of investor nervousness. So you're not going to just see it fixed and become a very calm market anytime soon.
BALDWIN: Ali Velshi, we can't -- even though some of us would not like to look at the rest of the week, we cannot put on our blinders. We have to see what the markets do? What are you looking at that?
(CROSSTALK)
VELSHI: When you said it was Monday, I actually -- I have been looking at -- I have been crunching numbers on the computer. I looked up and I said, oh, my God, it's Monday? It's like Thursday already. It can't be Monday.
Two things that Erin said that I think are really, really important, Ben Bernanke is the U.S. economy's most improved student. In 2007, in spring, he was up there Henry Paulson and President Bush daily, regularly, coming out saying, they don't have a recession, everything is under control.
They were all so wrong when all of the evidence proved that we were definitely in a recession. I mean, you didn't have to be an expert to know that. He was so strangely off on that for such a smart guy because he's an expert on recessions or on the Great Depression. He since then has really been the most improved student. He's been the one stalwart in this economy. He has done the right thing. The fed has done the right thing.
They resisted sharing information with the public. They had to be forced to do that by the courts. They have had to be pressured into some things by Congress, but generally speaking, I think Erin is right that we need to listen to what the Fed says tomorrow. They certainly have a better handle on this.
We complain about the stimulus and how it didn't work. And people say that. The Fed put way more money into the economy than the stimulus ever came close to. And they needed to and it was important. I think that's a very, very important point that Erin makes. Let's pay attention tomorrow.
Second point, If I am a really smart investor and I look at this Dow and I say it's at 10809 right now, and I think that is undervalued and I think it should be, just putting a number out there, let's say I think it should be at 12000 in fairness or even higher. If I'm a really good investor, I will invest in this market. And I won't be altogether that concerned if it goes a little from here, as long as ultimately I believe it will go higher.
I might put a little bit of money in tomorrow. I might put more money in, in a week or in two weeks. So I think Erin is right. We need to be careful, other than people like Erin and me who look at markets all the time, not to get too obsessed with whether it happens tonight or tomorrow or yesterday, but to know whether or not we believe that there's a shared view that this market is undervalued.
And if there is, then you make that decision on your own or with your financial adviser, or after looking -- researching the companies to get back into this market or as the gentleman we spoke to from San Francisco earlier said to get further in this market. It's the most counterintuitive thing in the world to decide that you're buying stocks now or tomorrow morning. It may turn out to be the right thing to do.
BALDWIN: It's like something is on fire, a lot of people, you don't want to get burned. But also to his point, he said maybe not a bad idea to keep a little cash on hand. So says Jay Leupp, our mutual fund manager friend here on this show.
(CROSSTALK)
BALDWIN: Erin Burnett, thank you so much for coming on. Come back any time.
BURNETT: Thank you.
BALDWIN: I know you have a busy night ahead of you, watching those Asia markets start to open up in a matter of hours. We will be watching for you on prime time.
Ali Velshi, you're not quite off the hook. Stick around with me.
VELSHI: Yes, sure. BALDWIN: We're going to continue coverage of this story also with our colleague Richard Quest, probably seeing a lot of long faces leaving the New York Stock Exchange as he is sitting there perched right across the street in New York.
We will be back in just a moment.
(COMMERCIAL BREAK)
BALDWIN: Welcome back to CNN NEWSROOM.
Breaking news: you see the numbers right over my shoulder. You can see always them. Go to CNNMoney.com. And it's this number that has many people panicking, the Dow down 634 points today.
Folks, this is certainly an echo of what we saw in those dark, dark days in the fall of 2008. The Dow has not been down that far.
I want to go to Richard Quest, normally in London. He is there now across from the New York Stock Exchange for me, in London.
Richard Quest, I mean, what is the mood? You see some of these men and women. These traders walking out of the building. What are you seeing? Just very long faces after such an abysmal day?
RICHARD QUEST, CNN INTERNATIONAL BUSINESS CORRESPONDENT: On a really busy day when the market is in full flight, up or down, it's not so really long faces. It's more like what happened? What hit me? That tends to be the reason.
Mike Fassula is an equity stock trader joins me now.
Good afternoon to you, Mike.
MIKE FASSULA, TRINITY DERIVATIVES: Good afternoon.
QUEST: Well, that's really -- this is a case of what happened today.
FASSULA: Well, what happened today is I think a lot of people were blindsided over the weekend with the S&P downgrade of the U.S. debt. And, you know, the fear is that we're heading back to a period like 2008.
QUEST: Right. Let's just take that slowly.
Inside and in the markets, could you feel that fear today do you think?
FASSULA: Yes. I mean, you know, there was a lot of people rushing around, a lot of people, you know, trying to get orders done.
QUEST: Were they selling or were they just standing on the sidelines? What people are actually thinking position? Because there's a big difference, isn't it?
FASSULA: Yes, there is. I think, in general, people were net sellers today. And I think going forward, that's the position a lot of people are taking. You know, sell first, you know, and buy second.
QUEST: Right. Now, a single downgrade by one notch from S&P, albeit on the U.S. debt, does not justify this sort of problem.
So, what do you, fundamentally, fearful about?
FASSULA: Well, fundamentally, you know, the credit market is locking up, you know? I think that's what everyone's biggest fear is, is that, you know, that borrowing money is going to become a very, very difficult task and it's going to freeze up, you know, a slowing economy already.
QUEST: Now, if that happens and, Brooke and Ali -- Ali certainly knows this certainly well -- if the credit markets freeze up, then we are heading back to 2008 when a simple loss of a bank caused the crisis.
FASSULA: That's right. That's exactly right. We will be heading back to 2008 if the credit markets freeze up.
QUEST: Do you see any evidence of the freeze up yet? No, I haven't seen any evidence, but, you know, I just, you know, based on the way the prices of stocks are moving, I would say that there is a big concern with that.
QUEST: Finally, Mike, for viewers watching, I want to know, these people want to know, everybody wants to know, is this serious? Or is just a Wall Street manufactured crisis?
FASSULA: This is not a manufactured crisis by Wall Street. This is serious. You know, the country faces a lot of obstacles going forward. We seem to not have a lot of leadership in Washington. They seem to be three steps behind the 8-ball always.
And at a time when we need everyone to get together and come up with a plan, it's, you know, politics as usual in Washington.
QUEST: Mike, thank you very much. I appreciate it.
FASSULA: Thank you.
QUEST: You know, in that one sentence, Mike Fassula has summed up beautifully, perfectly, more eloquently than I could have done. I suspect you guys either, exactly what happened.
It is a serious crisis and when people had to make decisions, they didn't step up to the plate.
BALDWIN: I appreciate that last question. As he said, yes, it is very so much serious. And for so many people, it's also surreal today.
Richard Quest, stand by.
Ali Velshi, you have a question for Richard? ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: Yes. I want to ask Richard something. Richard, and this trade had an interesting conversation about if they were credit freeze.
Richard, you -- because you're in Europe, you are following this debt and credit situation even more closely than Americans are. Americans have been very obsessed with the debt ceiling discussion. But the international debt question is much bigger.
Has anybody said anything to you about going in the direction of credit freeze? Because it does appear that today, we've got the opposite that. We've got remarkable liquidity and lower interest rates being paid for U.S. bonds. So, we're certainly not -- we don't have anything that looks like we're going in that direction, right?
QUEST: No. No. Two different type of credit squeeze we're talking about. You're talking about the bond markets and the liquidity in the overarching liquidity for the U.S. financial market in terms of refinancing government debt. And yes, U.S. 10-year came down several basis points.
I'm looking at Mike in case he thinks I'm getting it wrong. If I understand what Mike is talking about, the money markets -- the markets where banks lend to each other overnight. They all have a refinancing requirement. They all have to go and borrow. It's like me saying to you, Ali, can you lend me 100 bucks for tomorrow? And we do this every night, sometimes I borrow, sometimes you borrow.
VELSHI: Right. Right.
QUEST: But all of a sudden, you say, no hang on, Brooke is not good for the money. I'm not going to lend Richard anything. And then you end up with the seizure.
(CROSSTALK)
VELSHI: And that is what happened in the fall of 2008.
QUEST: Correct. And my cut gut feeling is tonight, Fed the ECB, the Bank of England, all the major central banks, are all plotting and planning how to flood the market with cash and liquidity if need be.
BALDWIN: Gentlemen --
VELSHI: And. Brooke, that's what happened last night. The G-7 countries had a phone call. And the European Central Bank had a phone call.
BALDWIN: Right.
VELSHI: So, they're all getting ready for this. Nobody wants to see us get anywhere close to 2008.
BALDWIN: Absolutely. Gentlemen, thank you so much.
Listen, I want to make sure this story back from where Richard is from. We want to take you to London. And if you haven't seen these images, stick around because there have been riots, there have been fires.
Look at this. Looting, all of this connected to violence -- a shooting debt of a 29-year-old man.
Now, we have learned that the Prime Minister David Cameron has been vacationing in Italy. Because of this, he's coming home, back to 10 Downing Street. We'll explain this for you, next.
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BALDWIN: Looting and violence in London has spilled into London for a third straight day. We will have more from London here momentarily.
But I do want to continue the story, the breaking news there on them markets. The Dow -- closing bell 41 minute ago, the Dow down 634 points today. Lows we haven't seen since 2008.
Ali Velshi has been good enough to stand by through the show with me.
And, Ali, I hear you have some news on the dollar?
VELSHI: Yes. Well, I've got some numbers on the dollar value of what we lost in the markets. Now, I want to be specific about this. We use a measurement, an index called the Wilshire 5000. It's the biggest grouping of stock values we can bring you.
And these are paper losses. It doesn't necessarily -- if you lost money in today's market, you didn't sell your stock, you didn't necessarily lose that money because you might stay in the market and it comes back. But the paper loss today, you're sitting for this, Brooke, $1 trillion was lost in paper capitalization today.
So, if this was lost and everybody had sold out and didn't get in the market, $1 trillion is what it is. This is the 10th time in 11 days that the index has been down.
So, you know, a lot of people say, why do they say that number because it's not relevant if you didn't take the loss? But some people do take the loss, because as you go through the course of the day and you sell those stocks and you decide that you're not going to buy in and you're going to wait until the market comes back, you've lost that money and you lost that ability to gain.
So, these are real losses for average people. And I think that's important to remember when we're dealing with this. These aren't just numbers. These are people's savings for retirement and college and who knows what.
BALDWIN: Absolutely. Many people nodding their heads and listening to you.
VELSHI: Yes.
BALDWIN: They know that all too well. Al Velshi, stand by. I don't know if you've seen these images out of London here. But this is now day three of these riots. Buildings, cars on fire. Some gangs of youth attacking a police car. Shops looted.
Take a look at these images. This is all linked to the shooting death of a 29-year-old man. His name was Mark Duggan. All of this happening in one particular neighborhood within London. This man was shot to death inside of a cab on Thursday.
Let's go to Dan Rivers. He is in the thick of things on the street, amidst all this rioting.
Dan, to you.
DAN RIVERS, CNN CORRESPONDENT: Yes, it looks like police are about to slowly move forward. You can see the dog handlers and police dogs are here. At the end of this road where there are blue lights flashing -- I don't know if you can see down there -- that's where there are a lot of people gathered.
And then inside the supermarket, just off to your left as you're looking at the screen, that's where there's been a lot of looting are going on. We were seeing people walking out with TVs and so on and get pelted from this direction that you're facing now by huge look like bottles and bits of concreted and so on.
So, it does look like the police are about to move in. Let's just swivel around this way and you see the police coming out with their long shields. I, like a lot of journalists, have done the kind of riot training with the police. And enough to said their training is incredibly realistic for this kind of stuff. And they do this fairly regularly, with this kind of training.
With petrol bombs as well, they will use, you know, real petrol bombs to keep this as real as possible, the training that they do. But, obviously, nothing quite prepared for what it's like in reality on the ground because it's so fluid. And you know, things come at you from all sorts of different directions.
BALDWIN: Dan Rivers and you saw a bullet proof vest, helmet in London. Let me be specific he was in Southeast London as these riots continue. As we mentioned, first time, broad daylight today, day three.
And now of course, he's (inaudible). You saw those images of buildings on fire, looting as well, all linked to the shooting death of this 29-year-old father of four.
Gordon Brown, again, the prime minister is leaving his vacation in Italy, heading home, and heading to 10 Downing Street to be part of this investigation into what is going on in London.
We have couple of other folks standing by. We're going to take you back to the breaking news there on markets in New York. Be back in just a moment.
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BALDWIN: I want to continue the story out of London. As I mentioned, I misspoke, Prime Minister David Cameron, he is the one heading back from Italy now from vacation because of these scenes, these riots, these fires, the looting that we've seen playing out in the streets of London.
I want to go live to Dan Rivers. Dan again is in Peckham that is in Lewisham in southeast London. And Dan, just set the scene for me. Tell me what you've been seeing and just put this in perspective. What started all of this?
RIVERS: Just take the most extraordinary amounts of public disorder here, Brooke. You can see behind me there's a police team of dog handlers who have come in to secure this supermarket, which as you can see if we take a walk in here was being looted by a gang of several dozen young people.
You can see all the windows smashed out here. We're told the staff clearly must have been terrified and took refuge on the roof. But this is just kind of emblematic of the wider picture here in Peckham.
We've been watching sustained rioting really with bottles and stones coming over. Every so often the police will charge forward and try and retake a piece of territory. But this isn't just the only place that this is happening in London.
Happening in a number of hot spots around London, all originally triggered by the shooting of a man, a young man in -- up in Tottenham on Thursday in a predominantly sort of ethnic minority area. That sparked the protest by his family then rapidly snowballed into something much bigger.
I don't think this town here has got anything to do with that shooting. This is all about opportunist criminality really. People just taking the chance to go in and seen people taking what looked like TVs and DVDs out of this supermarket.
Just helping themselves really because there was no one here to stop them for quite some time. Now order has been restored here, but you can see the place is just littered with broken glass and so on.
And one can only imagine if you're a resident living around here, you must have been absolutely terrified. The most bizarre thing in all of this, there's a bag of rice that someone has even taken out and emptied out on the floor.
The most bizarre thing is there are quite a lot of children here as well that we saw out in the streets, really young kids sort of 5 or 6 years old in the middle of all of this. Goodness know what is they would have made of all of this.
Now, anyway, Brooke, this looks like it's calmed down and the gang is dispersed. I don't know what the situation is on the main highway up there where we had been. But certainly we've seen gangs just roaming the streets in hoods and so on, very, very scary indeed. BALDWIN: Well, we're looking at you, Dan and it does look fairly calm where you are. Guys, were those live pictures of that fire? It was tape. So it was moments ago. But still, we're seeing these images playing out.
Dan, just so I'm hearing you right, some of these images, some of the rioting, this could be just copycat. This is not at all linked to the shooting death that you mentioned on Thursday. How were police - are they able to keep this under control? By the looks of these images, they're not.
RIVERS: They're struggling. I mean, they really are struggling in the areas we've seen. In the area we are in, in south London, they have just been trying to hold grounds. They haven't been going in to try and arrest people.
They've been outnumbered really where we are by a considerable margin. So they've been, you know, holding their line every so often. You know, if it gets especially antagonistic towards them then they'll charge forward, you know, hitting out with batons and so on, and then reform their line again.
You know, this is the worst public order I've seen I think ever in London. We have the student protests at the back in the last year, but this is something very different. This isn't a political protest. This is really just pure vandalism and looting really.
And it is pretty depressing to see not only here, but in lots of different areas in London just copycat violence. I think people whether they're getting Twitter feeds and people are telling them to congregate.
Or they're watching this on TV and thinking, OK, we'll go and do the same thing, I don't know. But it's a very sad day for London, just a year out from the Olympics.
BALDWIN: It is a sad day and it's just odd to look at those images and think that this is London. This is a world class city and it almost looks in parts like a war zone.
Dan Rivers, I thank you so much, Dan, for me live in southeast London. Now, some news just in with regard to a tragic story that unfolded over the weekend.
We learned about those 30 Americans killed in the Chinook helicopter over the weekend in Afghanistan. Let's go to Barbara Starr live for me at the Pentagon with some news there, Barbara.
BARBARA STARR, CNN PENTAGON CORRESPONDENT: Well, Brooke, we have just heard word that two U.S. military transport planes left Bagram, Afghanistan just short time ago carrying the remains of all 38 people who died on board that helicopter shoot down.
Thirty eight souls, Brooke, there are 30 American military personnel, a civilian interpreter and seven Afghan troops. So you might ask why all of that, all of those people, their remains are coming back to the United States?
Well, what we have also learned is very sadly, very difficult to speak about, the remains are in such poor shape due to the catastrophic nature of the helicopter being shot down that basically they removed all the remains from the helicopter.
They are bringing them back to Dover Air Force Base in Delaware. They will identify all of them formally and the Afghan remains, of course, will be returned then to their families.
So the planes are in the air, 30 U.S. military personnel making that final journey home. Their families expected to meet them at Dover Air Force Base sometime tomorrow when they land, Brooke.
BALDWIN: Thirty eight souls gone. Barbara Starr, I thank you very much. Think about their families and the people at Dover as well. Barbara, thank you and now let's go to Wolf Blitzer.
We are mere 5 minutes away from "THE SITUATION ROOM" and Wolf, such tragic news over the weekend, tragic news there. Tragic news when you look at the numbers on New York Stock Exchange today, amazing, echoes of 2008.
WOLF BLITZER, THE SITUATION ROOM: Well, just think about it. The 600-point drop on the Dow, Jones was even worse, the S&P 500, the Nasdaq, the percentage drop was even more significant. If you add up, Brooke, all of the equity that was lost just today, equity, people's 401(k)'s, their IRAs, their stock market account, portfolios, probably just in the United States, $1 trillion.
If you add that to the $1 trillion that was lost in the last two weeks before the S&P downgraded the U.S. credit rating from AAA to AA-plus another $1 trillion, so people are losing a lot of money. These are not just numbers that we're throwing out, Brooke, as you know.
Not just 600 points down in the Dow, these are people's life savings for a lot of people. They're losing a lot of money. It's going to take a long time. Now if you're young, you can make a lot of that up.
But if you're getting closer towards retirement, hopefully you haven't had that much money of your portfolio invested in just the stock market. You've got it diversified so you can sustain these kinds of horrendous losses.
We're going to be all over this story in "THE SITUATION ROOM." What's happening in Afghanistan and in the aftermath of that tragic loss of those 30 American troops including 22 Navy SEALs.
We'll also go to Kenya and Somalia to see what's happening in the starvation there. Sanjay Gupta and Anderson Cooper, they'll be reporting live for us in "THE SITUATION ROOM." Lots of news happening today. We'll have it all in "THE SITUATION ROOM."
BALDWIN: That's right. Anderson starts 8:00 Eastern today. This is the beginning of that. So that's exciting. We will look for him in Somalia, horrific story there. Wolf Blitzer, we'll see you in a couple of minutes on "THE SITUATION ROOM." Thank You. We're going to get a quick break in. We'll check in with my colleague Alison Kosik who's been in the thick of things really on the floor of the New York Stock Exchange. We'll have a unique look on how the day unfolded next.
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BALDWIN: Welcome back. Alison Kosik there for me. Alison, take a look. What we've done is essentially a time collapse of the Dow today fluctuated back and forth, back and forth. We start to see the opening up of all red and we now know exist on the big board.
I mean, final thoughts here? Talk about volatility, we talked about it last week. It's just Monday, Alison.
ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Yes, and you know what drove the trade today, Brooke, it was all about fear. Fear just sort of gripped investors and it would not let go today. You saw that even measured in this volatility index, the VIX. It jumped 50 percent. It doubled just today.
It shows you the fear that's out there about where the economy is headed, knowing that we have weak economic data coming out. We've got that S&P downgrade.
There's uncertainty about how that's going to affect the economy in the long term as far as credit, as far as borrowing rates, it's got everybody scared. That's really what you saw. You saw a lot of fear driving the trade today, Brooke.
BALDWIN: Fear and a lot of people have been tweeting me in this show and I apologize not getting your tweets. It's been a busy one, but a lot of fear over another recession. Alison Kosik, I thank you so much.
We'll continue this conversation tomorrow. And again, as Aaron Bernett very much so pointed multiple times today, look, we're all also looking for the fed tomorrow. We're going to be hearing from the chief, Ben Bernanke, 2:15 Eastern. We'll have to see what he says as we move forward.
And as we move forward here, let's go to Wolf Blitzer "THE SITUATION ROOM" in Washington starts now.
