In case viewers did not understand the concept of a domino effect caused by the financial crisis, on Wednesday’s CBS Early Show, co-host Julie Chen offered a visual representation as she declared: "What happens on Wall Street affects all of us on Main Street. It's the classic domino effect." At that point, six giant dominos where displayed in the studio, each one labeled with a different phase of the economic crisis (see video).
Chen went through each phase, and domino, with financial expert Vera Gibbons. At the end of the segment, Gibbons explained: "It's a domino effect, it all works together." Gibbons then knocked over the giant dominos and declared: "Voila!" Chen replied: "That's depressing." Prior to offering such a dumbed-down explanation of the financial crisis, on Monday, Chen referred to all the comedic material Sarah Palin provided to Saturday Night Live: "Tina Fey has just so much material to work with, this is like, probably a dream come true for her."
Here is the full transcript of the segment:
JULIE CHEN: What happens on Wall Street affects all of us on Main Street. It's the classic domino effect. Joining us is financial journalist and 'Early Show' contributor Vera Gibbons. Vera, good morning.
[SIX GIANT DOMINOS SETUP IN STUDIO, LABELED WITH DIFFERENT PHASES OF THE FINANCIAL CRISIS]
VERA GIBBONS: Good morning, Julie.
CHEN: Can Wall Street fix itself without a bailout?
GIBBONS: No, I mean, we need a bailout package. This is the worst financial crisis we've seen in decades. It's affecting the markets, it's affecting the economy, something needs to be done, it looks like, by all accounts, something will be done soon.
CHEN: It seems like there's no confidence.
GIBBONS: There is no confidence, I mean, confidence has taken a huge hit. These banks made a lot of bad bets on real estate, to the tune of hundreds of billions of dollars, lost a lot of money in the process. And in the meantime, too, lost a lot of trust, lost a lot of confidence. And that affects main street. Now there's a credit crunch, a credit freeze. People are going out there, trying to get a mortgage, can't get a loan, can't get a student loan, can't get an auto loan. None of that stuff. So, there is a broader impact on the consumer here.
CHEN: With that, what's happened to the housing market since there -- because of this credit crunch?
GIBBONS: Right, well housing values continuing to go down because desperate sellers can't sell their homes to perspective buyers because buyers can't get the financing. That's pushing prices down even more. In order for the housing market to stabilize, you really need to wipe out some of that inventory. We have over an 11-month supply. A lot of homes on the market right now sitting there. For stuff to stabilize, we have to get rid of some of that and that'll be a while.
CHEN: Okay, why is credit a problem for businesses?
GIBBONS: Right, businesses are having the same problem that the banks just aren't lending to them. They're not lending to them, they're not lending to consumers, they're not lending to businesses. So, we've seen more people lose their jobs. We've had over 600,000 layoffs so far. The unemployment rate is up to 6.1%, a five year high. Could go up to 7-7.5% sometime in 2009. Small businesses in particular, really having a difficult time. They can't get the financing they need to expand their operations to buy new equipment, to hire new employees. And some of them can't even fund their existing payrolls. So more layoffs inevitable.
CHEN: So with more layoffs, people are not spending.
GIBBONS: Well that's the issue. They don't have jobs or they're losing their jobs, their losing their homes. We've had a lot stock market declines. Wages are virtually stagnant. Home costs are going up. The cost of living, everything from gas to groceries is up. Home heating bills are ridiculously high. So there's no money out there to spend, which has called -- caused a panic.
CHEN: Which is the last step [points to giant domino labeled 'Panic'], people are in a panic.
GIBBONS: Right, I mean, look what happened on Monday, over $1 trillion in stock market value gone. Now thankfully, we regained a lot of those losses just yesterday. But people's retirement accounts, their college funds, have been totally wiped out. So there's a wide sense of panic out there. And no one knows how long, how deep this recession is actually going to be. So-
CHEN: Which causes loss in confidence, ends in panic, and it is-
[GIBBONS KNOCKS OVER GIANT DOMINOS]
GIBBONS: It's a domino effect, it all works together. Voila!
CHEN: That's depressing.
GIBBONS: It's depressing. But things will get better, first step is actually get this bill passed and then move on.
CHEN: Vera Gibbons, thanks.
GIBBONS: Thanks, Julie.
CHEN: You're welcome.