A Roundtable Review of The Rescue Plan
Friday, September 19, 2008SUSIE GHARIB: More analysis now on that government rescue plan and this week's historic events on Wall Street and in Washington. Joining Paul and me, NBR's New York bureau chief, Scott Gurvey, and our Washington bureau chief, Darren Gersh. Hey, guys, TGIF. Wow, what a week this was. You know, I think a lot of people feel better today.
GERSH: Is it over?
GHARIB: Yes, you never know with these weekends. All of these crises, it might still be going on. But I think a lot of people I talked to today were feeling a lot better about this government plan. And -- but on Monday, Tuesday, and Wednesday, almost everybody I talked to, pretty shaken up and fearful about the future. Darren, I don't know what it's like in Washington. What were you hearing in the corridors of the Beltway?
GERSH: I don't think most policymakers knew what was coming. I mean, they looked pretty stunned today when they started to get a sense of the price tag. But people I was talking to who did work in financial circles, I mean, it was a near-death experience. And sort of they were crushed on Wednesday and felt like they had been given a reprieve today.
GHARIB: Well, you know, we've all covered these financial crises before. Scott, Paul, you know, we've covered these. And we've seen, you know, meltdowns. And we've seen firm goes out of business. But there was something about this weekend, of seeing Lehman Brothers, Merrill (MER), maybe Morgan Stanley (MS), and Goldman Sachs (GS), in quick success like kind of a domino effect, you know, change every night. I mean, what do you guys think about this new era?
KANGAS: I think that we.
GURVEY: Well, there was this.
KANGAS: Go ahead, go ahead, Scott.
GURVEY: All right. I was going to say that there was a sense of fear on Wall Street that I hadn't seen before. In 1987, the markets froze too but they were the derivative markets, the futures markets. In this case, you know, you had all of these collateralized debt instruments, you had the swaps. And a lot of times when Wall Street comes up with these instruments they have complex formulas for what things should be worth and what they should trade for. But they never are able to quantify what happens when people just get scared. When people get scared, they stop trading. And that's what happened. And there was a real sense of fear, I think, the early part of this week because the market literally wasn't working at all.
GERSH: You know, that complexity is a really an important point because basically what has happened, and I don't think Wall Street realizes it yet, but you know, there has been a takeover. The federal government has taken over much of the financial system. And basically they are not going to like the fact that there were these complex instruments that these wiz kids and smart guys came up with that they didn't understand how they were going to work. And so what's going to happen going forward, we're going to have a massive change -- a massive regulatory change. And we're going to have a much more plain vanilla financial system going forward.
KANGAS: I think we have some of the best minds in the world at work trying to get this plan together. And I think that the American people, especially the investing public, have to have a lot of faith and confidence in the plan they will come up with. I'm sure it's going to be a winner, there is no alternative, it's as simple as that. (CROSSTALK) GERSH: We don't know all the details yet.
KANGAS: I know, we'll learn them but.
GERSH: They are working on the plan right now. And so it is not done.
GHARIB: And there are a lot of criticisms.
GURVEY: Well, and my point is that.
KANGAS: I have confidence the plan will work.
GURVEY: I think the people going to -- I think the people are going to dictate that there is a simplification of a lot of these complex things that go on, because there is a big difference between this and '87. In '87, about six months later, the economy was going along just fine. Main Street really hadn't been singed. In this case, because mortgages were involved, I think Main Street is going to feel this and is going to suffer for a few years. And I think that is going to demand that there really be change here.
GHARIB: You make a very good point, Scott. But also from the Wall Street point of view, there is a lot of passion and energy that the government is breaking the rules of the free market system. And we had a guest on the other night who said that -- felt that the Fed's pristine balance sheet has now turned into a pawnshop.
GHARIB: No reaction? No reaction. Let's talk about next week.
GURVEY: True.
GHARIB: What do you guys think is going to happen next week. Are we going to have another Sunday night crisis?
KANGAS: I don't think so. I think that as the details of the plan unfold, people will gain confidence and the fact that it will work and cooperate. I think politics will be put aside. And I'm confident that this is going to work. The RTC plan in the long run worked. I don't see any reason why this one shouldn't.
GHARIB: In Washington, Darren.
GURVEY: Yes, this is going to have to be put in.
GHARIB: Go ahead, Scott.
GURVEY: I was going to say, this apparently going to be put -- and Darren can speak to this, is going to be into place very quickly. And Congress is already on board. And you know, when you make -- when you make something up like this, doing it in a short period of time is not always the best bet. So I also think that after the election, after we have a new president, one way or another, some of these things that get put in place in the next week, they may have to rethink.
GHARIB: And you bring up a point, I wonder to what extent Americans have been affected by this financial crisis this week. And will it change the way they vote and who they vote for in November?
KANGAS: I would say so far it's in favor of Obama because it happening under a Republican administration. But it goes -- the roots of this problem go way back into several administrations, actually, so it's not fair.
GHARIB: You're absolutely right about that. We're going to have to leave it there. Thanks, Darren. Thanks, Scott. Hope you have a good weekend.
