this program is made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt >> susie: good evening, everyone. the fraud case against goldman sachs stirred up action from wall street to washington today. the obama administration is pushing ahead with plans to reform the financial system, and, tom, president obama will be on wall street thursday to make the case for financial overhaul. >> tom: susie, on wall street the dow bounced back from friday's sell-off with financial stocks leading the way. even shares of goldman found buyers in the afternoon, gaining almost 2%. >> susie: but none of that is stopping the momentum on capitol hill for regulatory reform. congressman barney frank's financial services committee will hold hearings tomorrow. ahead of that, he told our stephanie dhue the alleged fraud at goldman sachs could have been prevented if the right legislation had been in place. >> what was at the root of this were bad loans. loans that were made to people that shouldn't have gotten loans, subprime mortgage loans made imprudently. they were made by people who made the loans and immediately sold the right to be repaid. this process of securitization, people don't understand, i think, what an impact it has. both bills, the bill in the senate and the bill in the house say no, you can't do that any more. you have to retain some of the risk. 5% but you take the first five percent of losses so, that is very important. you also would have in both bills registration of hedge funds so that you would have a sense of what the hedge funds were doing. you have some regulation of derivatives because this involved derivatives. so the extent some of these things were being sold to retail investors, ultimately, at a fissureary responsibility that we impose, so yes, i think that would have stopped it. there is one central point, currently under the current law the regulatory assumption is that if you are a rich investor, indeed if you have more than a million dollars to invest, you don't need any protection. there is no regulation. well, the people who got sucker are-- suck erred in the goldman thing t is probably their own fault, nobody put a gun to their head, they were all in that category, so this drives home the central point that you can't leave any class of institutions allowed to make these unregulated trades. >> republicans oppose this idea of a bailout fund saying it will institutionalize too big to fail. >> there is no bailout fund. the use of the phrase ought to make them happy because there is no bailout fund. a bailout fund suggested there is money that is going to help an institution. >> so we should call it a dissolution fund. >> yes, it is-- it is a funeral expenses fund. and it's a dissolution fund which is, in fact what we do call it. >> a bailout fund suggests that you take money from the taxpayers and give it to institutions that have screwed up to keep them alive. none of that applies to our fund. and the first place, what it is money that is raised from financial institutions, not from the taxpayers. secondly, it can only-- only be spent to help put the institution to death. what we do in this bill is to first of all say that unlike the current law, the regulators don't have to pay-- they don't have to choose between paying all of the debts and none of the debts. they can pay only those debts of an ongoing, of an institution that are necessary to avoid a collapse. but there is no bailout. there is no public money and more importantly, the institution is dead. not a penny can be spent until the shareholders lose everything, the ceo is fired, the board of directors is fired, the company is basically dissolved. >> what we saw from the financial crisis is that looking back, fundamentally regulators didn't do their job. how do you legislate getting regulators to do their job? >> well, that's partly true what you say. george bush appointed people, in particular, and believed in doing the job. the clinton record wasn't perfect but the clinton regulators were much better than the bush regulators. what you do, first of all, is you change the rules so you don't rely on the regulators as much. i gave the example earlier of securitization and risk retention. first of all, you stop bad loans from being made. that doesn't depend on the regulator, that is a statutory requirement. secondly, we put in our bill that leverage can't be more than 15 to 1. that is you cannot owe more than 15 times-- times as much money as you have to pay things off. the regulators had allowed that at the sec to get much higher, 30 to 1 and more, so that is another example. on derivatives we say the senate is going to say the same, many of the derivative trades that are now done privately and quietly will have to be put on to exchanges. all the three things i've talked about now will work to stop an aig from happening. so you will still need regulators to do a good job for this to work as well as it can, but there are things we put in there statutoryly that wouldn't depend on the regulators. >> chairman barney frank, thanks for joining us. >> sure. >> susie: regulatory reform stays in focus tomorrow as the house financial services committee looks at the demise of lehman brothers. in prepared remarks, former lehman c.e.o. richard fuld says he was unaware of an accounting method called repo 105 that let lehman hide troubled assets and keep them off its balance sheet. fed chairman ben bernanke will also testify tomorrow. he's expected to say regulators lacked the means to rescue lehman. >> tom: here are the stories in tonight's "n.b.r. newswheel". some strong earnings from citigroup helped the blue chips bounce back from friday's losses. the dow rose 73 points, the nasdaq fell one point, and the s&p 500 added five points. volume was the heaviest in a month on the big board while nasdaq volume tapered off from friday. we'll have more on those citi results in tonight's "market focus". general motors is revving up plans to pay back nearly $5 billion in bailout loans. the automaker had planned a june payoff five years ahead of schedule. but it looks like g.m. will pay back the treasury this wednesday instead. another recall for toyota, this time it's 2010 lexus gx460 s.u.v. the problem is a potential roll- over risk. sales were suspended last week after consumer reports issued a rare don't buy rating. separately, toyota will pay a record $16 million fine for not reporting a safety problem with defective gas pedals. the company says it settled with government to avoid litigation. and still ahead on the program, face value. you might be surprised how many people base the trustworthiness of their financial advisor solely on looks. >> susie: airlines were cleared to resume some flights out of europe today as ash from the icelandic volcano began to clear. bu already, airline losses have soared to past the billion dollar mark. that's more than the impact of 9/11. erika miller takes a look at the impact here in the u.s. on the travel industry. >> reporter: new york city is more than 2,500 miles away from the icelandic volcano eruptions. but even here there are business disruptions. new york city estimates it could lose as much as $250 million in tourism revenues. however, the man behind the data, george fertitta, doesn't think the toll will be nearly that bad. >> if 80% of people return, the total gross loss would be $50 million. against that, there are those people that are staying. we are really talking about just a maybe $10 or $12 million in all economic impact. >> reporter: there's likely to be a bigger impact on the airline industry. according to one estimate, the five u.s. carriers with european flights are losing a combined $22 million a day in operating income. analyst basili alukos says that's about the same as a bad snowstorm. >> if those individuals never come back to fly, then that would actually be something material that would alter my valuation. but, at this point, it's likely something that will be pushed out maybe another month. so, ultimately, it's more of a timing issue than an economic impact. >> reporter: freight has also been affected by flight cancellations. both u.p.s. and fedex are working to transport packages in europe by truck wherever possible. on their websites, both companies warn of delays. but analyst jim corridore doesn't see a major hit to profits. >> all those goods that are being shipped-- except for highly perishable goods-- will eventually find their way to their destination. and companies will continue to see revenues from those goods. so, it won't be a huge impact for the air express carriers. >> reporter: the big unknown is when the disruptions will end. the last time this particular volcano erupted, back in 1821, activity went on for two years. erika miller, "nightly business report", new york. >> well, financial earningss bouts the dow and s&p to a higher close this afternoon so let's get right to tonight's market focus no surprise that citigroup was the most actively traded new york exchange listed stock, as it usually is, but today it did turn in its latest financial report card. and it was better than expected. citi was predicted to break even, but instead profits came in at 15 cents a share, the strongest in almost three years. citi shares caught a nice bid on the news. over the past three months, the stock has rallied more than 30% as prospects have improved. the stock remains below $5 a share though since august. as j.p. morgan and bank of america did before it, citi set aside less money for bad loans. goldman sachs saw another day of heavy volume after last friday's fraud charges filed by the s.e.c. the bank has promised to vigorously defend itself. lost in the controversy may be goldman's first quarter results, coming out tomorrow before the bell. its conference call will be led by chief financial officer david viniar. also tomorrow, earnings from apple are after the close. this report will not include any ipad sales though, as it was released after the end of the quarter. apple shares are about $4 below their all-time high. oppenheimer analyst yair reiner says watch the iphone results. >> the largest part of apple's bottom line today comes from the iphone. i think if you look in terms of fundamentals, that's still what's driving the business. it's a very, very large part of the revenues. and it's a disproportionate part of the bottom line because the margins-- the profitability on the iphone-- is much, much higher than any other part of apple's business. >> tom: a year ago, this is how apple's revenue pie was sliced. a third came from its mac computer sales; 20% from ipods, and that contribution has been dropping. iphone's contribution, though, has been climbing, with the rest made up of itunes, software and other sales. after the close tonight, big blue released its first quarter results. i.b.m.'s profit was four cents stronger than expected. and the company raised its full year guidance as well. it saw better margins in services and software. the stock has yet to regain its january high, and may have trouble tomorrow. after the close, the stock was off as much as 3%. we've seen merger interest building in the exploration side of the energy business lately, helping boost the entire sector. but mcmoran exploration cut its production forecast, and several nat gas explorers were hurt. mcmoran saw its first quarter loss narrow, but it cut its production prediction. fellow explorers stone energy and a.t.p. also saw selling. shares of dutch electronics conglomerate royal philips were goosed, thanks to better than expected profits. volume in p.h.g. was better than eight times average. sales growth was strongest in emerging markets, but also in japan. health care equipment sales growth was up, including an increase in the u.s. and that's tonight's "market focus". >> susie: chile is picking up the pieces from a devastating earthquake two months ago. the country just announced a series of measures to finance reconstruction. for a status report, we turned to "bloomberg markets" magazine reporter michael smith. he has a story on chile in the may edition of the magazine, now on newsstands. earlier today, i asked him to describe the situation there. >> well, there is still tremendous devastation, there are hundreds of thousands of people without homes. and a lot of businesses that have just disappeared from the face of the map. and now the government's really focusing on rebuilding people's lives, rebuilding their homes. and finding a way to get their local economies in those areas back on track. >> how would you describe the economy right now. >> well, the economy is doing very well. its-- growth is getting back up there after last year's secretary session, they are even saying that the spending from the earthquake relieve-- relief will help the economy great more jobs. and nobody really expects a significant impact on the chilean economy because of this. >> now you said in your report that the damages have topped something like $30 billion. and that's a huge chunk of chile's economy. just wondering, does the country have the financial wherewithal to rebuild everything or where are they going to get the money from? >> well, that's what they are grappling with right now. the new president who took office just after the earthquake happened, has just announced a package of increased government spending. taking more money out of the revenues from copper because chile is the largest copper producer in the world an exporter. taking out loans and issuing bonds in the international market. and a big chunk of that money and 30 billion is going to have to be handled by the private sector. luckily a lot of businesses had and homes had earthquake insurance so that will cover some of it. but undoubtedly it's going to be a significant task for the government to really cover this expense. >> so mike what is chile's problems both economic and reconstructionwise mean for americans here in the u.s. and the u.s. economy is there any connection. >> well, if are you an american you might see the cost of wine, the wine you buy from chile might be a little more expensive because a lot of winerys were destroyed by this quake. anything made of copper which is chile's big product that it makes might be a little more expensive although probably not a lot because global prices are sort of working around that. but the real costs will be on the chileans, the people who live in those areas, who don't have a home who are sleeping out in the open works don't have a business. and they're really, you know, their costs will be getting their lives back on track. >> and that is going to be quite a project. well, mike, thank you so much for come on our program. a fascinating story and markets magazine. >> thank you. >> tom: here's what we're watching for tomorrow. another busy day on the earnings calendar. with quarterly results from dow components coca-cola and johnson and johnson. also, we'll look at the challenges facing small businesses, from hiring to health insurance and having access to credit, we'll find out what smaller firms are doing to stay afloat. >> susie: the u.s. supreme court will hear a case involving costco and a unit of swatch group. the watchmaker wants to stop costco from selling its swiss- made watches at discounted prices. costco got those watches from the so-called gray market, an overseas third party who imports them into the u.s. at issue: whether makers like swatch can use copyright laws to keep their foreign-made products off the shelves of american discount stores. the high court will hear arguments in the case this fall. >> tom: president obama has nominated harvard professor donald berwick to oversee medicare and medicaid. berwick is a pediatrician known for challenging doctors and hospitals to provide better care at lower cost. if confirmed, dr. berwick would head up programs that serve almost one out of every three americans, and is growing. the new health care law will expand medicaid coverage by 16 million people, an expansion he'll oversee. >> susie: with unemployment staying stubbornly high, you'd expect consumers to be holding on to their wallets. but tonight's commentator says the consumer is making a comeback, and doing so in some surprising ways. he's bernard baumohl, chief global economist at the economic outlook group. consumers are just too fickle, he said. well, it's happened again. many experts thought that high unemployment and large debts would weaken consumer spending this year. not so. consumers have again mocked computer forecasts. retail sales have been rising all year, and march spending was the highest in 18 months. so what are analysts missing? here's one theory: americans are rapidly de-leveraging, some in ways never seen before. most have lowered their debt the old fashion way, paying off loans. others, overburdened with debt, have sought to wipe the slate clean by declaring bankruptcy. personal bankruptcy filings are now the highest in more than five years. but the most radical strategy may be among those 11 million homeowners whose mortgages are worth more than their homes. one in four of those homeowners have chosen to de-leverage by simply walking away from their homes. it may not be ethical, but some legal scholars claim it's a wise strategy in certain circumstances. the lesson here: when it comes to digging themselves out of debt, consumers are resorting to more unconventional ways to clean up their balance sheets-- and shop again. i'm bernard baumohl. >> tom: chances are you trust your financial advisor. but what gives you the sense he or she is trustworthy? in tonight's "your mind and your money", produced in association with kiplinger's personal finance, dan grech reports when it comes to trust, your brain could be sending you some wrong signals. >> reporter: thousands of new york's best and brightest trusted investment advisor bernie madoff to invest their money wisely. they didn't count on losing everything to his ponzi scheme. it was a similar story for larry and leslie collier of sarasota, florida. they put their faith in financial advisor arthur nadel. instead, nadel stole the colliers' retirement savings. and eduardo arango of miami lost his money in a real estate deal offered by a prominent couple in his community. both the husband and wife are now charged with fraud. >> what makes us think a person who is trustworthy, and why is it so easy to come to the wrong conclusion. >> researchers have found one reason, we may decide that a person looks on us based on his or her faition characteristics. princeton psychologist alexander todorov says even infants try to read a lot into a person's face. >> the first dimension you're trying to figure is, does the person have good intentions to me? is he or she going to harm me? and the second dimension seems to map into, is this person capable of harming me? >> reporter: to test that premise, todorov and his team developed a computer program that generates different faces. with it, they were able to make faces that were seen as more-- or less-- trustworthy. >> if you keep exaggerating the features of the face in the direction of trustworthiness, you end up with a happy face, a face that looks happy, it doesn't look neutral anymore. if you're exaggerating the features in the direction of untrustworthiness, you end up with an angry face, angry and threatening face. >> reporter: of course, it's not a good idea to only trust people with happy faces. princeton psychology professor emily pronin says we may also get the wrong idea about people through the halo effect. that's what happens when we base our opinion of them on just a few facts. >> the halo effect is a cognitive bias that leads us to judge people positively on a host of dimensions if we find them to be positive on a single dimension. >> reporter: to check that out, pronin and her graduate students conducted this experiment at the princeton junction train station. first, they showed waiting passengers a resume with a picture of a broker in a suit, described as a cornell graduate. then, they showed other passengers an identical resume, but with the man casually dressed, and described as a graduate of elmira college. >> what you find is that people are more interested in investing their money with the broker with the suit and tie who went to the ivy league school. they think not only that this person is more competent, but also that the person is more trustworthy. which is interesting because i don't think there's any particular reason to think that just because someone went to one school rather than another, or wears a suit rather than a shirt that they're more trustworthy. >> reporter: it's easy to think that people we believe in can do no wrong. of course, that's not the case. so, before you trust someone to handle your money, remember, appearances can be deceiving. dan grech, "nightly business report", miami. >> tom: that's "nightly business report" for monday, april 19. i'm tom hudson. goodnight everyone, and goodnight to you too, susie. >> susie: good night, tom. i'm susie gharib. goodnight everyone, we hope to see all of you again tomorrow night. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org >>