Erin Burnett of CNBC is not just another frequently appearing pretty TV face in the world of big-time business reporting. The anchor of CNBC's "Street Signs" (2-3 p.m.) and co-anchor of "Squawk on the Street" (9-11 a.m.), Burnett is a former investment banking analyst at Goldman Sachs and a former vice president at Citigroup. She's also a member of the Council on Foreign Relations and a regular contributor to NBC network news shows and "Morning Joe" on MSNBC.

I talked to Burnett by telephone at 3 p.m. Thursday as stocks were soaring on word that the federal government was going to create a special entity that would handle the huge real estate debt that has brought down major financial institutions and created a crisis on Wall Street:

Q: On a 1-to-10 scale, 10 being a meltdown, where are we right now?

A: It depends on who you ask. For many market players, this is a 9 or 10 event. You continue to see headlines discussing this as the worst crisis since the Great Depression. Some people would even say it's the worst crisis since 1907, so if you think about it that way, you have to say it's a 10.

If you look across America, which is something I've been spending a lot of time doing with CEOs of regional banks who can speak for one bank or up to 1,000 banks, there is a slow economy. That is a broader fundamental issue. But in terms of whether these banks are operating, able to get money, able to lend money, able to consider bringing in new customers and funding new projects, their answer is, "Yes, they're able to do all those things." So on that Main Street level, things have gotten worse, there are some real concerns, but it is most certainly not a 10. I don't know what it is, but let's call it a 5 or a 6.

Q: What is your sound-bite answer to a typical stockholder or nervous 401(k) owner who asks, "What the heck's going on?"

A: Over the past few years, money is like water. There was a lot of money and that money helped big institutions lend money to all sorts of people, including regular Americans. That's why mortgage rates were absurdly low and people could buy bigger homes than they ever thought they could buy for no money down. It's all part of the same story. Money was easy to come by and so it was very easy to borrow. What happens for an individual homeowner or an overall economy is that at one point people start to look and say, "Wow! Should I really be lending money to this person? Does this really make sense?" And money becomes a little bit more expensive. Interest rates go up a little bit. That's where we are seeing the strain now. It's lax spending and you've got to pay the piper some day. You go to a party and you binge. You eat the corn dogs and pigs in a blanket. You drink the cider, you drink the wine, you have the vodka. But you wake up the next morning and you feel pretty awful. That’s where we are right now.

Q: To paraphrase John McCain, are our economic fundamentals sound?

A: Nora O’Donnell asked me that the other day on MSNBC right after McCain made that comment about the fundamentals being sound. It’s a refrain that Treasury Secretary Henry Paulson has used, the president has used, but a lot of people roll their eyes at. They’re wrong in the sense that incomes by any fair measure have not grown for average people over the past eight years; certainly they have not outpaced inflation. Home prices over the past couple years have fallen sharply -- 15 percent over the past year. And we have been losing jobs in this country for the last five months. So in that sense you could say that the fundamentals are not strong. But, if you compare job loss now in this particular slowdown to job loss in a normal, “standard” recession, we’re not losing that many jobs. We’d be losing a whole lot more in a standard recession. So things could be worse. But in terms of the fundamentals, I would say they are strong.

America gets most of its jobs from small businesses. Those small businesses are small companies, family-owned companies across the country that create most of the jobs and they really create the entrepreneurial spirit that makes this country the place a lot of people want to move to because they think they can fulfill their aspirations and their ambition.

In that respect, the fundamentals are strong. That’s what makes America the envy of people around the world. I have spent a lot of time over the past year traveling to the Middle East and India and Africa. Even in Libya, where I was last weekend and where there is an ingrained dislike of the United States on one level, there is such amazing admiration for our financial system. That’s pretty invigorating. On that level the fundamentals are strong. That may not be specifically what John McCain was referring to, but I can tell you that he is both right and he is wrong.

Q: Is another big shoe going to drop on us?

A: I wish I knew the answer to that one. Last fall everyone thought that the next shoe to drop was a billion-dollar write-down from a bank. Those were the big things that were causing such huge concern and fear. Then when Bear Stearns happened, everyone thought that was the final shoe. And then this summer happened and you had Fannie and Freddie and then a week later you had Lehman Brothers and Merrill Lynch. And now you have aggressive stock price drops for the two remaining independent investment banks (Morgan Stanley and Goldman Sachs). Nobody knows what the next shoe is and I think that's the fear. It could be a commercial bank. It could be one of those investment banks. It might not be anything. But it is that fundamental uncertainty that's really causing the system to freeze up.

Q: Where should people put their money? Should they keep it under their mattress, put it in a CD or what?

A: That's a tough one. One of the things to emphasize to people is there are significant investment protections in place in this country. There are federal protections in place for people who save money -- we all know about the FDIC. There are also protections in place for investors through what is called the Securities Industry Protection Corp., the SIPC. If you have a brokerage account and your broker fails, they must give you back everything in your account -- and they usually do. If there is a problem with that or fraud, the SIPC will step in and people will get their money back usually up to half a million dollars. Insurance is regulated (by states) across the country, but there are also protections in place for that. The thing I would emphasize is that there are protections in place.

Generally speaking, you are protected. The one thing nobody can protect you against is a big drop in market value; there's no protection in the world that can help you from that. If you really think the market is going to keep crashing, maybe you would take your money out. But at this point, if you have gotten this far, you potentially run the risk of being one of the people who run out of the market and then you just might miss the big bounce, which is what happens to retail investors all the time. Continued...