NBR Transcripts September 25, 2008
Thursday, September 25, 2008President Bush's $700B Bailout Bill Remains Stalled on the Hill
SUSIE GHARIB: Still no deal tonight on that $700 billion financial rescue plan, despite an historic meeting at the White House. President Bush spent the afternoon with both presidential candidates and leading members of Congress, trying to reach a quick agreement to bail out the struggling financial sector. On Wall Street, the Dow rallied nearly 200 points on early reports that a bailout agreement had been reached. Joining me now from Washington with the latest on the negotiations, our Stephanie Dhue. Stephanie, where do things stand right now?
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Susie, at this hour, we're still in a holding pattern. The meeting at the White House has broken up. Now there are meetings going on back at the capital. Today's White House summit was part substance, part politics. Candidates John McCain and Barack Obama were at opposite ends of the table with President George Bush and congressional leaders in between. The president urged quick action on a plan to address the economic crisis.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: All of us around the table take this issue very seriously, and we know we've got to get something done as quickly as possible. And this meeting is an attempt to move the process forward.
DHUE: Earlier in the day a bipartisan group of key House and Senate lawmakers announced an agreement in principle of the outlines of a plan. Senator Chris Dodd summed it up for Wall Street this way.
SEN. CHRIS DODD (D-CT), CHAIRMAN, BANKING COMMITTEE: We believe that we are prepared to act expeditiously on a package to our colleagues that will allow us to send a message to the markets, that the Congress heard the message and we want to do what is correct and right in the next few days, we can't say exactly when.
DHUE: The $700 billion plan would be done in installments, with the first at $250 billion. Treasury would have the authority to purchase troubled assets, but it would have to answer to an oversight board. The government would get warrants from the companies that unload troubled assets. Executive compensation would be limited for companies taking part in the program and the plan would also include measures to reduce foreclosures. But after this afternoon's White House meeting, Senator Richard Shelby, the ranking Republican on the Banking Committee, said there is no deal.
SEN. RICHARD SHELBY (R-AL), RANKING MEMBER, BANKING COMMITTEE: I can tell you I don't believe we have an agreement. I've voiced my concerns all along.
DHUE: Instead, he wants lawmakers to consider an alternative to give the Fed and Treasury more money to add liquidity to the market. There is also vocal opposition from people who have sub-prime loans. CROWD: Stop the bailout! What about us! Stop the bailout!
DHUE: The Neighborhood Assistance Corporation of America is protesting the deal. Bruce Marks leads the activist group.
BRUCE MARKS, NEIGHBORHOOD ASSISTANCE CORPORATION OF AMERICA: The American people know it's a bad bill across the board. It should be stopped, because the American taxpayer doesn't want to foot the bill for these Wall Street predators who have made millions of dollars.
DHUE: While no one really likes this bill, the political consensus is that doing nothing is really not an option, Susie?
GHARIB: So, Stephanie, what happens next?
DHUE: Well, they actually have to have the legislative language and they have to build support around that.
GHARIB: Well, what are the sticking points to get to that point?
DHUE: Well, some are substance like the bankruptcy bill that people have wanted to include should they change the bankruptcy law so these loans can be worked out in bankruptcy court, and some is politics. No one wants to take ownership of this bailout. But then again, no one wants the alternative either.
GHARIB: Well, as you said earlier, one way or another they are going to come up with a bill. What is the timetable on this, in the next 24 hour does you think that we are going to have an agreement on both sides?
DHUE: Well, I think 24 hours might be a little bit ambitious. Congress was supposed to recess yesterday. Now it looks like they will be here through the weekend. But I do think that we will have something in a matter of days, not weeks.
GHARIB: All right. Thanks a lot, Stephanie.
DHUE: Thank you.
GHARIB: We've been talking with NBR Washington correspondent Stephanie Dhue.
Will The Bailout Change Our Behavior?
PAUL KANGAS: One likely byproduct of the bailout plan is a change in how American consumers, all of us, spend and save. Many economists say we are already pulling back on purchases. But will we make long-term changes to our financial behavior? Suzanne Pratt reports.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Most would agree that the U.S. is a nation of spenders, not savers. That's partly because shopping is one of our favorite pastimes, and debt is not a four-letter word. But, we also live longer. And now many of us must pay an increasing share of health coverage, while funding children's education and supporting aging parents. The result is that our personal savings rate has steadily declined for more than two decades. It was about 10 percent during the 1980s, and by some estimates currently hovers near negative. Economist Steve Ricchiuto says Americans have been abysmal savers partly because we view our homes as piggy banks.
STEVEN RICCHIUTO, CHIEF ECONOMIST, MIZUHO SECURITIES USA: Through the entire real estate spike in prices that we've experienced, people felt that their savings were actually going up and therefore they needed to save less.
PRATT: The U.S. savings rate, which is the share of savings as a percentage of total household disposable income, is among the lowest in the industrialized world. 2007 household savings were more than 10 percent for many European nations, 3 percent for Japan and almost non-existent for the U.S. And, as the financial crisis reaches a crescendo in Washington, many economists now predict U.S. consumers will tighten their purse strings.
RICCHIUTO: I think the impact is going to be an increase in savings because since you no longer have that savings coming from your house, in order to maintain a future level of savings for your retirement and for a rainy day, you're going to need to go out and build traditional savings balances which consumers have not done really well.
PRATT: Becoming better savers may not happen by choice, but it's likely to be a new reality for American consumers. The calculation is that banks will want to build up their own capital, so they will be less willing to lend for everything from new homes to new cars. A more fiscally virtuous mindset is also likely to reverberate throughout corporate America. CFO magazine's David Katz, says there's already evidence of altered corporate behavior.
DAVID KATZ, DEPUTY EDITOR, CFO: GE (GE) today, for instance, pulled back on its stock buyback. So that tells you that they're holding on to their cash. And you're going to see a lot of that going on, I think.
PRATT: Experts say making the transition from debtors to savers will not be easy. A shop 'til you drop mentality is ingrained in American culture, and it will take time to change. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
One on One with FedEx CEO Fred Smith
SUSIE GHARIB: More analysis now on that government bailout, a view from corporate America. A short while ago I talked with FedEx CEO Fred Smith. My first question to him: Will the rescue plan solve the underlying problems in the economy and the financial sector?
FREDERICK SMITH, , CHMN. & CEO, FEDEX: There is the industrial sector and there is the financial sector. And the real justification for these moves in Washington is to keep the problems in the financial sector from bleeding over into the larger industrial sector. And I suppose in terms of credit for cars and houses and appliances and so forth, that that will become a problem if they don't stabilize the financial markets one way or another.
GHARIB: Mr. Smith, I know we don't have any specifics on what this bailout will look like, but how do you think it would impact your business at FedEx?
SMITH: Well, my guess is directly, not too much, because, again, the financial sector and the industrial sector, while they meet in the middle, if you will, really have different rhythms, different market mechanisms. But the industrial sector or the good sector depends on credit for much of its activities. So overall, I think the problems in the financial sector will be reflected in a slowing business environment for all things, including the industrial sector in which we participate in the main.
GHARIB: We've been hearing from companies complaining about tight credit conditions. What is your experience? How tough are things these days?
SMITH: Well, we have a very strong balance sheet. We'll produce strong positive cash flow. We have in response to the slowing economic outlook reduced our capital budget from about $3 billion initially estimated for the fiscal year '09 that we are in now, to about.$2.6 billion. So we have no credit issues. Having said that, many of our customers rely on credit to either finance their inventories or to make credit available to their customers, or their customers require credit like automotive customers to buy automobiles. So there definitely is a slowing in the economy overall and I'm sure that in many ways it's related to the tightness of credit.
GHARIB: And there is a slowing also at FedEx, last week when your company reported quarterly earnings, a big drop in them and the company said it is going to raise prices in January, cut capital spending, as you just mentioned, and freeze hiring. What is weighing on your business?
SMITH: Well, while our earnings were down year-over-year, you also have to remember in the 12 months that went in between those reporting periods, we saw the fastest run-up in fuel prices in, I believe, the history of the world. Now having said that, we are very cautious about the rest of the fiscal year because of the slow economic conditions here, increasingly in Europe, and are you even seeing some of it in our very big Pacific operations, China and intra-Asia. Still growing but not nearly to the extent that it was a few months ago.
GHARIB: From what you are hearing from your customers, whether they are individual consumers or businesses big and small, when do you think the economy is going to turn around?
SMITH: It's anyone's guess, but I think a lot of this is going to have to wash through the economy before you will see any significant growth. And there has got to be some stabilization of energy prices, which is in many ways the proximate cause of a lot of the financial problems we have today.
GHARIB: Mr. Smith, thank you so much for your time, I hope next time we talk we will have more cheerier news to talk about.
SMITH: Thank you.
"Commentary"-The Presidential Transition Period
SUSIE GHARIB: Tonight's commentator has a few thoughts on the transition to the next presidential administration. She's Barbara Hackman Franklin, president of Barbara Franklin Enterprises, and former U.S. secretary of commerce.
BARBARA HACKMAN FRANKLIN, PRES. & CEO, BARBARA FRANKLIN ENTERPRISES: The United States government will soon face a transition. On November 5th, the president-elect will immediately begin to assemble his team and prepare to take office in January. No matter who is elected, there will be a new White House staff, a new cabinet, and many other new appointments. Once cabinet members are selected, they must have security and ethics checks and then be confirmed by the United States Senate. Once confirmed, they must quickly become leaders of their departments, be knowledgeable about the issues, and build working relationships with their colleagues in the administration and on Capitol Hill. This can take anywhere from three months to a year, and the challenge is to keep the government working effectively all the while. Today we are in unsettling times. The financial sector is in crisis. The economy is sluggish. The U.S. government is playing an unprecedented role in maintaining stability. And we are engaged in a war on terror. While we are so preoccupied, it is the perfect time for adversaries around the world to make trouble. We cannot avoid this transition. But we should understand our potential vulnerability. Both candidates must prepare. The current administration must be vigilant, and after the election, it must help make this transition as speedy and smooth as possible. The well- being of our country depends on it. I'm Barbara Hackman Franklin
SUSIE GHARIB: And finally tonight, the fight against cancer has a new weapon in its arsenal, proton therapy. It's a type of radiation treatment used to fight cancerous tumors and hospitals around the country are weighing its costs and benefits. In tonight's "Bill of Health," Jeff Yastine looks at what it could mean for both patients and hospitals. JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: It is a battle Nat Greene fought and won, his battle against prostate cancer. He was all set to undergo surgery when he heard about something called proton therapy. And after researching it, decided to go that route.
"Bill of Health"-Proton Therapy
NAT GREENE, PROTON THERAPY PATIENT: It is very painless. It has no actual side effect, it had very little side effect for me. And the process lasts only about maybe an hour a day, the treatment. And you go every day for about two months, eight weeks.
YASTINE: Systems like this one in Jacksonville, Florida, use a beam of protons to fight cancer in the body. X-rays or photons have been used for decades in a similar matter, but unlike X-rays, proton particles can be focused precisely on the cancerous area without damaging surrounding healthy tissues. Dr. Alan Pollack, chairman of radiation oncology at the University of Miami's medical school, says research continues into its best uses of proton therapy.
DR. ALAN POLLACK, CHAIRMAN, RADIATION ONCOLOGY, UNIV. OF MIAMI MILLER SCHOOL OF MEDICINE: It holds great promise. But we still have a long way to go before understanding what sites would benefit the most. For example, should -- is treatment for prostate cancer better using proton therapy than photon therapy? This is an unanswered question today.
YASTINE: Pollack's hospital is planning to build its own proton therapy center to answer that question. But many hospitals eager for the latest cancer-fighting tool aren't waiting for the data. There are five working proton centers around the U.S. with four more under construction. But many other hospitals are seeking licenses or funding to build their own proton therapy centers which can cost more than $100 million each. Rick Gundling of the Healthcare Financial Management Association says it's a question of medicine and marketing.
RICK GUNDLING, HEALTHCARE FINANCIAL MANAGEMENT ASSOCIATION: But I think a lot of times the technologies are used to help, you know, attract physicians and attract patients to hospitals, and used as a competitive advantage as well. A lot of these new technologies have traditionally been within academic health centers or teaching hospitals. And now the hospitals that can afford it are bringing those within their walls.
YASTINE: Which means that in coming years, the technology will be available to more people fighting cancer like Nat Greene. Jeff Yastine, NIGHTLY BUSINESS REPORT, "Bill of Health."
PAUL KANGAS: Wall Street opened with a rally on reports Congress was making progress and hashing a deal on the financial rescue plan. In a sure-footed advance, the Dow posted a 245-point gain by midday, while the NASDAQ Composite was up 40 points. Stocks showed little reaction to news that General Electric cut its earnings estimates, or to a big 11.5 percent drop in August new home sales. So the Dow managed to keep most of its solid gains right into the final bell. The Dow Industrial Average closed up 196.89 points at 11,022.06. The NASDAQ was up 30.89 points at 2,186.57. Standard & Poor's 500 Index gained 23.31, ending at 1,209.18. In the bond market, the 10-year note fell 7/32 to 101 7/32, putting the yield at 3.85 percent. The most active stock on the Big Board, 38.1 million shares traded, American International Group (AIG) losing $0.29. Former CEO Hank Greenberg plans to sell some of his 11 percent stake in the company, which in 2005 was worth $20 billion. It's now worth about $1 billion.
Paul Kangas' Stocks in the News
General Electric (GE) in there with a $1.09 gain, even though the company cut its third-quarter earnings estimate from a high of $0.54 to $0.48 at best, the company also is suspending its stock buyback program and not boosting its dividend for the first time since the 1970s. On top of that, Standard & Poor's downgraded it from buy to hold. The stock still up on the day.
Citigroup (C), a $0.45 gain.
Pfizer (PFE) in there with a 65-point advance.
And a $1.30 gain in Bank of America (BAC).
National City (NCC) dropped $0.03.
AT&T (T) up $1.09.
Exxon Mobil (XOM) gained $2.64.
JPMorgan Chase (JPM) up nearly $3 a share.
And then EMC (EMC) with $0.84 advance.
McDonald's (MCD) closed up $0.84, and after the close, the company announced it boosting its quarterly dividend 33 percent. It will go to $0.50 a share. In after-hours trading, the stock gained about $0.50 a share.
MetLife (MET) up $2.42. Citigroup repeated a buy with a $0.70 a share price target.
Stifel Financial (SF) down $2.77. The company and Western & Southern Life Insurance priced 1.7 million share public offering of Stifel stock at $45 a share. A little earnings dilution there. Nike (NKE) up $5.74. Late yesterday, first-quarter earnings came out at a $1.03, down from $1.12 last year. But that was $0.11 better than expected. And today both Citigroup and Standard & Poor's repeated buys on Nike stock. Owens-Illinois (OI) up $4.94. Citigroup repeated a buy and Longbow Research upgraded it from neutral to buy on the improving pricing outlook for glass containers, which is their major business. Ameron International (AMN) tumbling $36.12, it traded as low as $68.25. Third-quarter earnings tumbled to $1.63 from $2.32 a year ago. The company sees fourth-quarter earnings below the third quarter because of slowdown in the piping business. Vail Resorts (MTN) down $2.33. Fourth-quarter loss of $0.29, $0.09 worse than expected. Deutsche Bank downgraded it from buy to hold. And Pilgrim's Pride (PPC) down another $2.53 after losing $3.90 yesterday on credit crunch concerns. Today the company said it's going to have a significant fourth-quarter loss and a possible loan default due to higher feed costs and wheat pricing for its products.
Red Hat (RHT) down $1.53. Second-quarter earnings higher, $0.20 versus $0.17 last year, but sees third-quarter falling to $0.16 to $0.17.
And Texas Industries (TXI) down $2.46. The cement producer says California construction activity is very slow and it reported first-quarter earnings tumbled to $0.38, down from the Wall Street estimate of $0.77.
NASDAQ's most active, Apple (AAPL), up $3.22. Microsoft (MSFT), and we'll have more news on that shortly, up $0.89.
Research In Motion (RIMM), an $0.82 gain. After the close, Research reported second-quarter earnings, $0.86 up from $0.84 a year ago, a penny below the Street estimate. And also I had a rather discouraging outlook. In after-hours trading, RIMM's stock tumbled 20 points, down to the 77 level.
Google (GOOG), $4.49 gain.
Cisco Systems (CSCO) up $0.68, fifth in NASDAQ volume.
Intel (INTC), $0.13 loss there.
Oracle (ORCL) up $0.52.
Qualcomm (QCOM), $1.25 gain.
Baidu.com (BIDU) up $8.23.
And Amgen (AMGN) gained $1.55.
CRA International (CRAI) down $10.20. It's a business consultancy, and third-quarter earnings came out at $0.32, way down from the $0.88 Wall Street estimate.
And finally Transmeta Corp. (TMTA) up $2.58. The company is exploring its sale and it entered into some licensing pact with Intel.
Those are the "Stocks in the News" tonight.
