but risk makes capital markets move. >> susie: meanwhile, the housing market is an important risk to the u.s. economic recovery. we search for solutions to the housing crisis as we continue our series, "how to fix the economy." it's "nightly business report" for tuesday, august 16. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by: this program is made possible by contributions to your pbs station from viewers like you. thank you.

>> tom: good evening, and thanks for joining us. u.s. stocks ended a three-day rally today as investors were disappointed by proposals to fix europe's debt problems. the hope was that dramatic new ideas would come from the meeting today between german chancellor angela merkel and french president nicholas sarkozy. >> susie: you know, tom, there was a big build up of expectations for the meeting, and then a big letdown. sarkozy and merkel pledged to defend the euro and announced plans to coordinate economic policy of 17 euro-zone countries. they proposed a new council to act as an "economic government" for europe, a tax on financial transactions starting in september. but they rejected the idea of issuing joint euro bonds, saying that would not solve europe's economic problems. and many had really hoped the two would endorse that kind of bond. so u.s. stocks fell today. the dow lost 77 points, the

nasdaq fell 31, s&p 500 down almost 12. trading volume up slightly from yesterday's pace: just over a billion shares on the big board; over two billion trading on the nasdaq. >> susie: reassuring news today about the u.s.' credit rating did little to cheer investors. fitch ratings reaffirmed its aaa rating on the u.s. and, in a blatant disagreement with rival standard & poor's, fitch gave a vote of confidence to washington's deficit-reduction efforts. still, all the recent wrangling in washington and europe over budgets and the global economy have rattled investors everywhere. so much so that many are reevaluating their appetite for risk. suzanne pratt reports. >> reporter: a quick walk on manhattan's park avenue takes you by some well-known firms for regular investors. guess what? today, they're mostly empty. perhaps that's because it's vacation season. but, more likely, it's because the stock market lately has been rather unfriendly. in the last month, the dow has traded in nearly a 2,000-point

range, with daily triple-digit moves becoming the norm. those market swings have made this financial planning office a very busy place. c.e.o. lewis altfest says nervous clients are questioning their appetite for risk. >> these are clients that were stung in... in the 2008 period, and they're afraid they're going back in to that kind of an environment. >> reporter: altfest says they want reassurance the dow won't tumble to 6,000. altfest thinks that's unlikely. his best advice: investors should stay in the market or even buy in. >> when stocks go down, people emotionally feel nervous. fundamentally, they should feel the opposite. if i were not to call it stocks but call it a car and say the car's on sale, they go out and buy it. >> reporter: for many investors, that's still a hard concept to

grasp, especially when you consider the how stocks have done in the last decade. since august 2001, the dow has gained a whopping 10%. that's a measly one percentage point a year. investment strategist stephen wood says the market's so-called lost decade means americans are likely to focus on protecting nest eggs rather than expanding them. >> that said, nothing in the world comes for free, and the price of being more conservative is that growth will be lower. so that means you need to look at alternative spaces in terms of managing your portfolio, and that means a nontraditional way of growing assets. >> reporter: perhaps it's natural human behavior to fear risk, but experts say when it comes to investing for the long- term, people need to bear down and embrace that risk. suzanne pratt, "nightly business report," new york. >> tom: still ahead tonight, we focus on financials. year to date, it's the worst stock sector. from bank of america to citi to goldman sachs, how new regulations are forcing changes

to the banking business. >> susie: more grim news on the housing market today. builders broke ground on fewer homes in july. housing starts fell 1.5%, and building permits-- a gauge of future construction-- fell 3.2%. both numbers were worse than expected and a sign that the real estate market is still weak. now, that's bad news for the u.s. economy, which benefits from home construction. as we continue our series, "how to fix the economy, we focus tonight on housing. darren gersh explains the issues. >> reporter: there's no place like home to jump start the economy. usually housing leads the way out of recession, creating construction jobs and every other job tied to a home, from furniture making to finance. but housing is a long way from a leadership role now. >> we would normally expect to see sales maybe 400,000, 500,000 higher. we'd expect to see prices higher. what we are doing is, we are pulling out of a rather significant slump very slowly,

much more slowly than would normally be the case. >> reporter: the key stats tell the rest of the story. home prices are down 32% from their peak in 2006. the total inventory of homes for sale, including the shadow inventory of homes in or near foreclosure, is 5.7 million-- down from the peak, but that will still take years to clear. >> when foreclosures start to ramp down to where they should be, which is well under 5%, i think you'll see prices start to really stabilize and start to recover. >> reporter: so far, efforts to modify mortgages and help clear the backlog have done little to help. the obama administration's "home affordable modification program" has helped 657,000 homeowners renegotiate their loans. 1.5 million people have signed up for the foreclosure prevention program, but, so far, almost half of them have dropped out. darren gersh, "nightly business report," washington. >> susie: so what are the solutions to fixing the housing

mess? here with some ideas: mark zandi, chief economist of moody's analytics. hi, mark. nice to have you on the program. >> thank you, susie. >> susie: well, let's begin by talking about president obama'slatest housing proposal, which lets the private investors by a pool of foreclosed homes, then they rent them out and eventually flip them. what do you think of that plan? will that help the housing market at all? >> yeah, i think it's reasonably good idea. the key here is reducing the number of distressed properties, the number of properties that are in foreclosure or pretty close to foreclosure. that's key to stabilizing housing values and getting housing construction going. this is an effort to take properties that fannie mae, freddie mac and the fha have repossessed. instead of dumping them on the market, which would lower housing values and make construction markets weaker, turning them into rental properties. they have a number of different

mechanisms for doing it. there is no magic bullet here. i don't think this is a magic bullet, but i think it will be helpful. >> susie: how would it help the economy? >> well, anything that can stabilize housing values, house prices, and help to support an increase in housing construction is a big plus for the economy. as we just heard, the housing downdraft, the collapse in the housing market has been arguably the most significant weight on the economy. so as that lift, that will be a nice support to economic activity. >> susie: one thing you've been talking about in many of your reports is getting policy-makers to make it easier for mortgage refinancings and also delaying a reduction of the so-called conforming loan limits. tell us about these two ideas and why they wow help. >> right. i think one of the things that could really help very quickly is to help facilitate more mortgage refinancing. many home owners having difficulty taking advantage of the currently very low mortgage rates. as you know, fixed mortgage

rates are at record lows. if you're a prime borrower, you can get a fixed-mortgage loan for 4.25%. that's very low. but most people can't do that because they may have an impaired credit score or they don't have any equity in their home. so i think there are ways to bring down the rates that those folks face. i think those are loans that are already insured or owned by fannie mae and freddie mac. reducing those rates will allow for more refinancings. that lowers monthly mortgage payments and that makes it less likely those folks would get into trouble and it would also put money in their pockets. that would be a big plus for the economy. >> susie: uh-huh. some people have been suggesting reviving the first-time... the credit for the first-time home buyers. what do you think of that idea? >> i think that's an idea whose time has passed. we've had three housing tax credits. i think the first couple rounds were pretty helpful. they brought an end to the housing crash. but i think homeowners are getting to the point or potential home buyers are

getting to the point where they'll stop buying and wait for next housing tack credit, so it's becoming counterproductive. folks in the real estate industry are not supportive of that idea. >> susie: mark, a big part of the whole problem... i mean, these proposals all sound good, but a big part of the problem is this crisis of confidence. what do you think has to happen to restore consumer confidence so they feel good about buying a home? >> well, the key here is i think that policy-makers need to remain aggressive in responding to the problems that we face. the administration, congress has to follow through on the debt ceiling deal and continue on with deficit reduction. the federal reserve has to remain very aggressive in keeping long-term interest rates down. and the european policy-makers have to be aggressive in responding to their crisis. so the crisis of confidence will only be resolved if policy-makers remain consistent and aggressive in responding to it. >> susie: that's a tall order. thank you so much, mark. we've been speaking with mark zandi, chief economist of moodies's analytics.

>> tom: tomorrow, we continue our series "how to fix the economy." we head to main street, u.s.a., for a look at how middle america is coping with the struggling economy. >> susie: here on wall street, it because struggling stock market. having said that, you consider that the dow is down as much as almost 200 points and then bounced back to be down 70 plus not so bad. pretty resilient. >> pretty resilient, certainly from the lows of the day, susie. let's go ahead and roll with tonight's market focus. >> tom: three sessions of buying ended with today's losses. after the close, the market focused on these quarterly results from dell. earnings were a nickel better than estimates, but revenues were shy of forecasts. dell also lowered its sales forecast, blaming uncertain demand.

dell came into the report battling a weak market today, gaining almost 2%. but the stock was down more than 7% in after-hours action. that takes the stock down around $14.60 per share. the broad market was weak today. the s&p 500 dropped 1%, spending the entire session in the red. the market hit its low point of the day just after 1:00 p.m. eastern time. that's when the german and french leaders spoke after their meeting and did not announce a european-wide bond strategy despite hopes for one. that disappointment really fed european worries, hurting the financial sector the most. this broad-based financial exchange traded fund fell almost 2%. this is a year-to-date chart. we'll have more on the financial sector after the "market focus." among the financial stocks getting hit today, financial

exchanges with business in europe. the n.y.s.e. euro-next saw its shares fall more than 8%. the intercontinental exchange focuses on global commodities and derivatives. it's shares fell 4.5%. the nasdaq o-m-x owns the nasdaq her ein the u.s., as well as exchanges in scandinavia. it's shares fell almost 3%. now, we have to mention bank of america. again, it was very active and the biggest loser among dow industrial stocks, slipping more than 4.5%. this is the past 30 sessions. late today, there are reports b- of-a is talking with the blackstone group about selling real estate the bank got when it bought merrill lynch. the best dow component today was home depot, jumping more than 5%. customers are spending more per visit, helping increase sales. the company also is optimistic enough to raise its earnings outlook. here are the quarterly results, coming in three cents better than estimates. the company says it sees

strength across hardware, tools and plumbing. meantime, wal-mart also turned in better than anticipated earnings, four cents ahead of estimates. same-store sales in the u.s. were a weak spot, down for the ninth straight quarter. company management says their customers continue to be "strained." shares responded nicely to the earnings and the outlook, though, up almost 4%. volume was heavy on this rally today, too. and that's tonight's "market focus."

the banking business has been under pressure and scrutiny for more than three years now. it's blamed for contributing to the financial crisis, and its criticized for not doing enough to lift the economy out of the doldrums. so far this year, financial stocks are down 19%. that's the worst sector performance among s&p's ten big industry groups. while banks have increased their financial cushion against a sour economy, they await dozens of new rules brought on by congressional reform. john garvey leads price water- house cooper's financial services advisory practice. >> the big risk is really that the regulatory changes are really upsetting the entire business model and... and take into account also that many of the regulations have yet to be written. so there is an uncertainty element, as well. >> tom: one of the biggest banks facing this uncertainty is

goldman sachs. it is the subject of a story in bloomberg market magazine that's on newsstands now. john joins us now. what new banking regulations are the biggest threat to the way goldman sachs has done business throughout the years. >> there are really two. one americans are mostly familiar with that came out of the dodd-frank act of 2010, which came out of the financial crisis. within the dodd-frank act, there is major rewrite of the derivatives business, a multitrillion dollar business, a very big business for goldman. it sells things from options to credit default swaps. that is really a game that has been played sort of like an off-shore poker game for many years, and it's about to be moved into the casino closely watched by the regulators. so that's one big change. the other change is the one coming out of the bank for international settlements in basel, switzerland, which is raising the capital requirements for all international banks,

saying they have to keep more of their own skin in the game. they have to keep more equity capital. that lowers the profitability for firms like goldman. >> tom: means they have to keep a bigger cushion on the sideline as opposed to putting that money to work. goldman's business before and after the crisis has changed. and the new regulations obviously changing, as well. in the second quarter of 2007, revenues were over $10 billion. last quarter just over $7 billion. net income over $2 billion. it's about half that in the past quarter. how much can regulations be blamed for this drop-off, though? >> well, actually, not a whole lot because a lot of these regulations we're talking about are going to be fazed in over the next six or seven years. the derivatives legislation, for example, the rules even finished being written great f -- yet. that won't happen until the end of this year. even on the capital requirements coming out of basel, switzerland, that's a phase-in that will happen between now and 2019. really what we're looking at now in terms of goldman's profitability is the effect of the financial crisis on the

overall industry. >> tom: so, john, give us an idea with goldman sachs stock price down 30% since the crisis, how is it responding to this pressure? >> well, it's taking very fast action because it knows as these regulations come on, it's got to become really a few firm. it's investing very heavily in technology, investing close to $1 billion a year each year the try to have the best trading systems on wall street, to have the lowest costs on wall street, so they can actually win business. they're also looking to move more of their business to emerging markets. as goldman likes to say, they chase g.d.p. around the globe, so they're hiring heavily in china, india, brazil, the brick countries, all the emerging market. >> tom: john guerin, senior analyst. >> susie: here's what we're watching for tomorrow. we'll get a check on wholesale prices with july's producer price index, and we'll see the weekly reports on mortgage applications and crude oil and gasoline inventories. also tomorrow: gold.

is all that glitters going to $2,500 an ounce? we look at whether there's a bubble brewing in the precious metals market. the recent pullback in green coffee prices could soon be showing up in your morning joe. smuckers is cutting prices on its folgers and dunkin' donut brand coffees, with the price drops averaging 6%. the reduction comes after a rapid rise in prices earlier this year when the brands boosted prices by 23%. smuckers is the first of the major roasters to slash prices. so far, neither kraft's maxwell house brand nor starbucks have dropped prices. >> tom: with the competition heavy, sony hopes to boost playstation sales by cutting prices. it's slashing the price on its playstation 3 video game console by $50 to $250. the move comes as the company continues to cope with fallout from a hacking attack on its online playstation network earlier this year. sony hopes to better compete

against microft's x-box and the nintendo wii. >> tom: despite all the wild market swings lately, one gruff of investors has stepped up buying, corporate executives. that brings us to tonight's word on the street.

david is back with us. we're talking about legal insider buying, but this has a mixed track record as a sign of future stock gapes. how do investors, how should they use it? >> sure. well, insiders aren't always correct, but there is one reason why they buy, and that's to make money. so i like to see insider buying, but i also want to look behind the stock and see there are potential catalysts, that the stock can move higher in the near term. >> tom: i imagine you don't ignore the fundamentals by looking at insider purchases, as well, correct? >> correct. >> tom: all right. huntington bank shares is first one to come across, hban the ticker symbol, and ohio bank, the c.e.o. has been buying shares. what makes you like it? >> well, several things here. first of all, you mention the insider buying. i also like the fact that management raised the dividend here. not many banks have raised the dividend since the financial crisis. hban is now yielding over 3%. they also had a good quarter recently. i think the stock has limited downside from current levels.

>> tom: we should point out while the c.e.o. has been dying at $5, also buying in may when the stock was at $6. conveyo another one, cvo the symbol, focusing on envelopes and labels. the chairman is in there buying more shares. what's the back story? >> sure. well, both of these stocks are down acted 20% to 25% year-to-date. i like the fact you have multiple insiders buying cenveo. that's a good sign. the stock is trading at less than ten times earnings. that's very attractive relative to the overall market. >> tom: we mentioned insider buying with cbo. the same chairman bought shares in november, bought them earlier this year, and the share price clearly has been dropping. so again, back to that earlier point, you can't just use insider buying as the only reason to pull the trigger to buy a stock, correct? >> true. it comes to matter of timing. again, when you see cenveo drop below ten times earnings, i think that's when it becomes

very attractive to purchase. >> all right. can you own any of these shares? do you own any of them, david? >> i cannot and i do not. >> tom: there you go. you can read david's article at thestreet.com. our guest david pelletier with thestreet.com. >> susie: tonight's commentator has an idea for fixing the economy, but it involves a real change in mindset. here's michael mandel, senior fellow at the progressive policy institute. >> the presidential campaign season has started. here's what i'd like to hear from president obama and the republican candidates: the need to shift the u.s. from a consumer economy to a production economy. for the past 20 years, we've put most of our resources into consumption and distribution. we've built shopping malls rather than factories, we've cared about low prices rather than good jobs, we've borrowed trillions of dollars from the rest of the world. it seemed like a good idea at the time, but it hasn't been working for us. real incomes are down, job growth is weak, the future seems troubled. the u.s. must change course to a

production economy. we need to take up our fair share of the global productive burden. we need to focus more on good jobs and less on low prices. we have to emphasize investment in physical, human and knowledge capital, and pay less attention to consumption as the yardstick of success. i'm talking about a cultural shift as well as a change in economic policies. a big step, for sure, but we have to start somewhere. i'm mike mandel. >> susie: and finally, a milestone today for the u.s. patent and trademark office: the agency issued its eight- millionth patent. it went to california-based second sight medical products for a device that helps increase perception for people losing their sight to retinal degeneration. it took 75 years for the patent office to hit the one million mark. that happened in 1911. but tom, it only took six years to go from its seven millionth patent to the eight million mark. quite an achievement. >> tom: the unbelievable speed of innovation, siewz -- susie,

no doubt. >> susie: and that's "nightly business report" for tuesday, august 16. i'm susie gharib. good night, everyone. and goodnight to you, too, tom. >> tom: good night, susie. i'm tom hudson. good night, everybody. 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