Michelle Girard of RBS Greenwich Capital Markets & Mike Holland of Holland & Company Analyze Fed. Chairman Bernanke's Capitol Hill Visit
Tuesday, July 15, 2008
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SUSIE GHARIB: Joining us now with more analysis about the Fed's comments on the economy, the rescue plan for Fannie and Freddie, and the outlook for the financial markets, Michelle Girard, senior economist at RBS Greenwich Capital Markets; and Mike Holland of Holland & Company. Hi, Mike. Hi, Michelle.
MICHELLE GIRARD, SENIOR ECONOMIST, RBS GREENWICH CAPITAL MARKETS: Good evening, Susie.
MICHAEL HOLLAND, CHAIRMAN, HOLLAND & COMPANY: Hello, Susie.
GHARIB: Mike, let me begin with you. Would you say that the financial markets are stabilizing and that investors were satisfied by what they heard today from Treasury Secretary Paulson and Fed Chairman Bernanke about their rescue plan for Fannie and Freddie?
HOLLAND: In a word, yes, Susie, but then let me qualify it by saying it is a process now. The markets back in March basically seized up, and because of what Bernanke and Paulson have been doing since then, particularly Bernanke, he gets an A for what he has been doing, they have been mending, but they have been in bad shape and it was very important that they did what they did with Freddie Mac and Fannie Mae today.
GHARIB: Michelle, what do you think? Are things stabilizing?
GIRARD: Well, I think what is important here is that they have sent a clear message that Fannie Mae and Freddie Mac are going to be supported and that is so important because what we cannot have happen now is the availability of mortgage credit to get even more difficult. I mean, housing demand is already weak, if it becomes even more difficult because Fannie and Freddie are not able to participate in the market, if it gets even more difficult to get a mortgage and housing demand weakens further, then we are just going to continue to see this sort of spiral between weak housing, weak financial markets, and it ends up feeding negatively on itself.
GHARIB: Exactly. I think that is the point. I think one of the worries out there for investors and for Americans generally is that despite all of the best efforts here to fix up the situation, that Fannie and Freddie and the banks just won't be able to shake off this financial crisis. What do you think, Mike?
HOLLAND: Well, what has happened, Susie, we have had a sea change here, and it goes actually back to Bear Stearns but now comes through Freddie and Fannie, and that is that we are being told that the federal government, which means us as taxpayers, we taxpayers are going to stand behind these situations. Disregarding the arguments on both sides of that, that is a huge sea change. If they hadn't done that, no one knows what the state of the capital markets would be right now, but we wouldn't be so calm as we are right now. We are now standing as taxpayers behind these institutions. The Congress who were questioning these three guys this morning were the people who created this mess, which is ironic, but these three guys have actually come together and they have made some changes here that are very seismic and significant. And whether they are good or bad we will only know over time, but that makes a big change.
GHARIB: Michelle, let me turn to the economy, because Fed Chairman Bernanke gave a very gloomy outlook about the economy. Do you think that the Fed is running out of tools in its toolbox to fix the economy?
GIRARD: Well, I don't think so. You are right, I do think that the outlook for growth, there was more concern than there was even after the June FOMC meeting when we last talked. And I think it is as a result of the renewed, you know, turbulence in the financial markets. You know, the problem here really is not about the Fed cutting interest rates, it is about banks being willing to extend credit. So there certainly is room for the Fed to do more, cutting rates, which I don't think is really in the cards, or adding more liquidity, but the biggest thing here is to stabilize the financial system and hopefully get the banking system back on its feet so we get into a situation where credit can be extended.
GHARIB: So what is the solution, in your view, Mike? I mean, this has been -- so many bleak headlines this week, Fannie, Freddie, the weak dollar, General Motors today. What is it going to take to restore confidence in the U.S. economy and the whole financial system?
HOLLAND: Time, Susie. I think the steps that have been taken have been, as I said, seismic. They have been very important. We have now taken our balance sheet as a nation and put it behind this system and said, we are not going let it fail. So that confidence will over time seep through. We have found people who are selling, for example, the debt of these companies, they made a mistake. Common sense has also prevailed, they have said we are not going to bail out the shareholders, that's a smart thing. I think time -- whenever we get into a bear market like this, every time I have heard -- been in one, I have always heard how scary it was and this is the worst ever. And when it turns out if you are an optimist in the worst of times, you probably are going to do OK because they do work themselves out. And we'll be -- we will get through this, but it will just take time.
GHARIB: OK. I hope you are right and I hope it is a short time. Thank you so much, Mike and Michelle, appreciate it. My guests tonight, Michelle Girard from RBS Greenwich Capital Markets, and Mike Holland of Holland & Company.
