NBR Transcripts - September 26, 2008
Friday, September 26, 2008The Battle Over the $700B Bailout Rolls Into The Weekend
SUSIE GHARIB: Congressional leaders and White House officials are still trying to hammer out a deal on that $700 billion financial rescue plan. House Speaker Nancy Pelosi said late this afternoon that Congress will work through the weekend and she is optimistic that a deal will be reached by Monday. That optimism was echoed on Wall Street where stocks rallied with the Dow jumping 120 points. Washington bureau chief Darren Gersh has been following all of today's developments and joins us now with the latest, Darren?
DARREN GERSH, NIGHTLY BUSINESS REPORT WASHINGTON BUREAU CHIEF: Hey, Susie, you know, the good news is that everybody is now saying they want to get something done quickly. The real issue is how you define something and quickly. The day began with the president trying to get all of his players back on the field.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The legislative process is sometimes not very pretty, but we are going to get a package passed. We will rise to the occasion. Republicans and Democrats will come together and pass a substantial rescue plan.
GERSH: Not long after, Senate Democratic leader Harry Reid stepped to the podium to promise action.
SEN. HARRY REID (D-NV), MAJORITY LEADER: We're going to get this done, and stay in session as long as it takes to get it done. We'll work with the president to modify his plan to make it better for taxpayers and homeowners. We want to make sure that there's oversight.
GERSH: A market on intensive care and a major bank failure tend to concentrate the political mind. New Hampshire's Judd Gregg says the renewed pace of talks was no surprise.
SEN. JUDD GREGG (R), NEW HAMPSHIRE: People are -- of any sophistication are looking at the markets and saying, they're telling us we had better do something, and they're telling it to us in pretty stark terms.
GERSH: House Republicans had been in open revolt against the White House, insisting Congress consider cheaper and more free market approaches to the Paulson plan. Today, they agreed to join the negotiations, though Minority Leader John Boehner continued to talk tough.
REP. JOHN BOEHNER (R-OH), MINORITY LEADER: We will not agree to a bill that sells out taxpayers to bail out Wall Street.
GERSH: By late this afternoon, House Speaker Nancy Pelosi signaled some form of the House Republican plan involving government insurance for bad debts could become part of the ultimate package.
REP. NANCY PELOSI (D-CA), SPEAKER: As long as other proposals do not interfere with that, the success of your proposal, I think that you should have the latitude to accept any and all proposals.
GERSH: House Banking Committee Chairman Barney Frank, a key player in the talks, says in order to restore confidence in the markets, the final product will need strong bipartisan support.
REP. BARNEY FRANK (D-MA), CHAIRMAN, FINANCIAL SERVICES COMMITTEE: If this were presented in a partisan way, if one of the political parties in either of the houses looked like they were saying no, or one of the presidential candidates appeared to be trying to undercut it, it will not only be hard to pass, it makes it hard to work.
GERSH: You know, Susie, we just heard a lot from Washington, but I want to tell you something that I heard from Ohio today. When I was there for the primaries, I met a machinist named Ron Gewax (ph). Well, I talked to Ron this morning and he told me that his boss came to him in tears and said, look, Ron, you know, our customers' loans have dried up, we can't -- we're not getting business and we have to let you go. So this credit crunch is now hitting home. That's evidence of how it's hitting home on Main Street.
GHARIB: Absolutely, it's a very tough situation for a lot of people. Darren, we're hearing from other folks about how the financial crisis is affecting them, and we got an earful from people on Chicago's Magnificent Mile.
UNIDENTIFIED MALE: I'm not a big proponent of government bailing out anything, but I think in this situation -- I think a bailout is absolutely necessary to get the -- kind of like the financial wheels turning again in the markets.
UNIDENTIFIED MALE: Tough proposition either way because, on the one hand, you know, taxpayers are going to be footing the bill. But, I mean, at the same time, everyone is impacted by it, because, you know, people have bank accounts, savings, mortgages.
UNIDENTIFIED FEMALE: I'm against it, unless they get something in return for it.
UNIDENTIFIED MALE: I think Paulson is frightening me a little bit right now. He's really gaining too much power.
UNIDENTIFIED FEMALE: Are you worried about your savings? Yes, everybody is. You can't afford not to be. Your savings can go in a split second. All of those years of your working and savings can just go in a split second, in a matter of moments.
UNIDENTIFIED FEMALE: I do have a lot of fears. I'm -- you know, and for my job. I mean, we don't know where all of this is going to end. And, I'm in the airline business and that's not very good to be in right now. So, yes, I'm very concerned.
GHARIB: They're not the only ones concerned, Darren, as you know, members of Congress are hearing similar comments from voters in their districts.
GERSH: Yes -- and, Yes, Susie, you know, we're also hearing a lot about how the politics will impact, you know, the policy, and there's really raising a question of whether it's a question of principle or politics. And Stephanie Dhue has more on that.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: High stakes negotiations often follow a predictable path, where things seem to fall apart before they are put back together. You could call it politics. Lawmakers call it principle and take seriously what their constituents have to say. Senate Majority Leader Harry Reid office's was visited by vocal opponents of the bailout. Reid says he has also gotten calls and e-mails against the proposal.
REID: Is this pleasant work? No, it's not pleasant work. Look at what's happening, the calls coming into our offices, our e-mails, people are very unhappy with what we're doing. But we believe we have an obligation to the country and that is Wall Street and Main Street.
DHUE: House Republicans say having the government insure, rather than buy mortgage-backed securities, and including a temporary capital gains tax cut in the plan, reflect their free market principles. Minority Whip Roy Blunt wants those ideas included.
REP. ROY BLUNT (R-MO), MINORITY WHIP: This is a tough time. We are going to negotiate seriously. I've already reached out to the negotiators -- the other negotiators to talk about our desire to get this done and to get this done with some additional free enterprise principles.
DHUE: Democrats have already put their principles into the plan, including Treasury oversight, limits on executive compensation, warrants for taxpayers, and help for homeowners.
REID: We have certain principles we believe in. Are those principles negotiable? Of course they are, we are legislators, legislation is the art of compromise, but our basic principles are not going to be thrown out the window.
DHUE: Normally, presidential election year politics keep high stakes legislation from passing. But political analyst Tom Mann says that a genuine fear that doing nothing could lead the country into a depression is driving lawmakers to pass a solution.
THOMAS MANN, DIRECTOR OF GOVERNMENT STUDIES, BROOKINGS: If it were just politics, they'd do nothing. It would be the safest thing to do. It's hard to sell Americans and especially working class Americans who have been hit hard by recent economic times the necessity of ponying up $700 billion, seemingly to bail out some failed Wall Street executives.
DHUE: The question now is whether a compromise can be crafted before economic conditions make it impossible to fix the problem. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
GHARIB: So, Darren, it seems like there's a lot of optimism that this deal will get done this weekend. What do you think? Is that going to happen?
GERSH: Well, you know, when you have all the major members coming out and saying, look, we're going to get this done, we're going to get it done soon, that seems to be an indication that it will get done. Whether it will get done this weekend, I don't know. People are saying they hope to get it done by Monday. That's ambitious, but it looks like cautiously that it will get done. Congress doesn't like to go home in the face of a crisis and do nothing.
GHARIB: Right, right. And then the real bottom line is, once this deal is done, whenever that is, will it trickle down to Main Street? Will people really be able to get bank loans and mortgages? Will people be able to keep their jobs?
GERSH: That is the critical question. And what-- I think what the first indication that we'll have to see is whether banks start lending to each other. I mean, if this bad debt indeed looks like it's going to get cleared off the books, banks might start trusting each other. They might lend to each other. And let me tell you, if they're not going to lend to each other, they ain't going to lend to you and me. So that's the first step.
GHARIB: That's right. Darren, let's talk a little bit about the debates tonight. The two presidential candidates have decided to go ahead with their debate, finally, tonight. What do you think they're going to say about the bailout? What are they going to say about this whole credit mess?
GERSH: I think it's all going to be about that. It looks like the format, which was supposed to be foreign security and security matters, is going to get tossed out. Look, I'm already getting the e-mails from the campaigns, the sort of pre-sniping. You know, I think it's going to be fairly predictable, unfortunately, in many ways. I mean, I think we're going to see Obama saying that, you know, Republican stewardship of the economy has failed. We'll see McCain talking about how, you know, he has been for reforms all along, and then they're going to argue back and forth. I would hope that they would address, you know, the United States' standing in the world and whether or not our economy still inspires confidence around the world. We'll see.
GHARIB: The whole world is going to be watching tonight. Here's their chance. Darren, thanks a lot.
GERSH: Absolutely.
GHARIB: Have a great weekend.
GERSH: Thanks.
GHARIB: We have been speaking with Washington bureau chief Darren Gersh.
WAMU Is Going, Going, Gone...Sold to J.P. Morgan
SUSIE GHARIB: Shares of JPMorgan surged 11 percent today after it bought Washington Mutual for almost $2 billion. JPMorgan got that fire sale price after federal regulators shut down WaMu late yesterday in the biggest bank failure in U.S. history. As Erika Miller reports, the question now is which financial institution could be next?
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: At Washington Mutual branches, like this one in Manhattan, it was business as usual today. On the company's Web site was a welcome message by JPMorgan Chase, which bought the bulk of WaMu's banking operations yesterday. WaMu's failure has many people concerned about the health of the entire U.S. banking sector. On the positive side, Sandler O'Neill bank analyst Kevin Fitzsimmons does not see the imminent collapse of any other big banks. That includes Wachovia (WB), which holds a heavy pile of sub-prime and other risky mortgage loans .
KEVIN FITZSIMMONS, BANKING ANALYST, SANDLER O'NEILL: I think there are several reasons why Wachovia and Washington Mutual are not apples to apples. I think Wachovia has been up front about that loan portfolio and has tried to be aggressive reserving for it.
MILLER: Wachovia's stock was under heavy pressure today, and after the close, there were reports the bank is exploring a deal with Citigroup (C). However, analysts do see more failures at smaller, less diversified banks, especially those with big exposure to rapidly weakening real estate markets in Florida and California. The prospect of more bank failures is raising concerns that the Federal Deposit Insurance Corporation could run out of money. As a June 30th, the FDIC had $45 billion in reserves, but IndyMac's failure in July is taking a large bite out of the fund. Brian Bethune, chief U.S. financial economist at Global Insight, thinks the FDIC will weather the storm. He points to positive developments in the financial sector. Including Bank of America's (BAC) merger with Merrill Lynch (MER), the takeover of WaMu, and recent capital infusions into Goldman Sachs (GS) and Morgan Stanley (MS). Most importantly, though, is the prospect of a financial sector bailout plan by Congress.
BRIAN BETHUNE, CHIEF U.S. FINANCIAL ECONOMIST, GLOBAL INSIGHT: Things definitely look much better now than they did a few weeks ago. And, with this program that Congress is looking at, it will add to this positive momentum, which is exactly what we need at this point.
MILLER: But analysts say it's not just enough to pass a plan. A lot depends on its details. In particular, which securities the Treasury will buy from banks and how much it will pay for them. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
"Market Monitor"-John Manley, Managing Director of Global Wealth Management at Citi Smith Barney
PAUL KANGAS: My guest "Market Monitor" this week is Robert Stovall, managing director and strategist at Wood Asset Management, based in Sarasota, Florida. And, Bob, welcome back to NIGHTLY BUSINESS REPORT.
ROBERT STOVALL, MANAGING DIRECTOR & STRATEGIST, WOOD ASSET MANAGEMENT: Thanks, Paul, good to be with you.
KANGAS: In your 55 years on Wall Street, how would you rate the current economic crisis on a scale of one to 10, with 10 being the worst?
STOVALL: I think it's moving up toward the 10 number. Nothing that terrible has really happened yet, but the fear and trembling is everywhere, Paul.
KANGAS: Well, are you expecting some kind of a concrete plan to come out of this weekend debate in Congress?
STOVALL: I think it may take longer than just the weekend, Paul. I think it may take a week or more for a plan to come out. And I think it's going to be a plan that will do things in fits and starts. And -- but as my mother used to tell me, Robert, don't stand there, do something. So I believe that the leadership has to do something and do it -- start doing it fairly quickly. And if the past is any help to us, Paul, it will straighten itself out in time.
KANGAS: What does Wall Street need to see from this plan?
STOVALL: I think Wall Street needs to see that the government is going to try to participate and give guidance and try to assuage the fears of the general investors who really are worried about the stability of the accounts that they have with brokers, bankers, and everywhere.
KANGAS: Mm-hmm. Will $700 billion be enough to ease the credit crunch and get the U.S. financial system back on track?
STOVALL: It's a shocking number for most people, Paul. They can't really get their arms around $700 billion. If it's fed in gradually and reports given for progress for each step along the way, it might be better if it's done that way. But, of course, we don't know what the leaders will decide to do.
KANGAS: Well, that's just a question of waiting and wanting certain things, and I guess Wall Street is just going to have to accept what comes out of it. Would you agree?
STOVALL: I think so. I think the leadership has shifted from Wall Street down to Washington. Just see who the key players have been these last two or three weeks, and also, the Wall Street people certainly contributed to this. These huge pay packages for failure, which keep happening time and again, that's in the craw of people, and they're now starting to talk about it. And you know, there's a lot of -- a lot of hostility on the part of the public investor.
KANGAS: Back in March, Bob, you told us that we were entering both a recession and a bear market. Where do we stand now?
STOVALL: We're in a recession. I think it's a mild one, and I think it's also global. You see slowdowns just about everywhere, from the Baltic trade data, elsewhere. And it's also in the States here. I think that expectations have been dropped somewhat on a global basis. In terms of a bear market, we're in one. We've dropped from last October to the present time about 22 percent in the S&P and the Dow 30. It's not a severe bear market yet. I think it can continue until we're down about 28, 30 percent maybe. But I believe that if you give enough time, the earnings will come through, and we'll move towards a dis-inflationary mode here and things will start to look better.
KANGAS: Normally we'd review your previous stock picks and get new recommendations, but tonight we really wanted to focus in on your veteran view of Wall Street, so we put our stock picks -- or your stock picks on our Web site, NBR on pbs.org. And, Bob, I want to thank you very much for sharing your veteran thoughts with us. It has been a pleasure.
STOVALL: You're welcome, Paul. You're welcome, Paul. See you in six months, I hope. KANGAS: There you go. My guest, Robert Stovall of Wood Asset Management.
Paul Kangas' Stocks in the News
PAUL KANGAS: Wall Street opened lower after the bailout talks broke down overnight and Washington Mutual failed and was taken over by JPMorgan Chase. An hour into trading this morning, the Dow was off 78 points and the NASDAQ down 35. During mid-session, stocks stabilized as the bailout talks resumed and President Bush said an agreement was imminent. That triggered enough optimism to set off a solid late rally. The Dow Industrial Average closed up 121.07 points at 11,143.13. This week it rose twice and fell three times, had a net loss of 245.31 points. The NASDAQ fell 3.23 to 2,183.34 today. And it also rose twice and fell three times this week, losing 90.56 points overall.
The Standard & Poor's 500 Index gained 4.09 to 1,213.27 today and for the week it dropped 41.81 points overall. In the bond market, the 10-year note rose 3/32 to 101 7/32, putting the yield at 3.85 percent.
Big Board volume leader on 54 million shares, National City Corp. (NCC), down $1.28. Standard & Poor's sees the stock weak on the delay of a bailout agreement and also the company's similarity to Washington Mutual. The company, however, said it has sufficient capital to weather the storm. JPMorgan Chase (JPM) moved up $4.74, as you heard, it's taking over Washington Mutual (WM). And after the close today, Standard & Poor's said it's removing Washington Mutual from the Standard & Poor's 500 Index and replacing it with a company called Flowserve (FLS).
Wachovia (WB) down $3.70. It also has large exposure to potential mortgage losses. And as you heard, New York Times reported that the company is in early talks with Citigroup.
American International Group (AIG) up $0.13. Citigroup (C) itself was up $0.74. Fifth in Big Board volume.
Bank of America (BAC) up $2.33. It's acquiring Merrill Lynch (MER), as we know.
Freddie Mac (FRE) in there with a $0.14 gain.
Pfizer (PFE) up $0.02.
Companhia Vale (RIO) down $1.37.
And GE (GE) was a $0.43 loss.
Boeing (BA) moved up $0.90. The company received 24 jet liner orders from an unidentified customer or two this past week, and that's even as the machinist strike continues. Also the company is acquiring Tapestry Solutions, a parts-tracking firm. No terms were disclosed as to how much they're paying.
Fertilizer stocks very weak today as Citigroup downgraded them. And so did RBC Capital because of the instability of the price of nitrogen. Agrium (AGU), CF (CF), Mosaic (MOS), Potash (POT), and Terra Industries (TRA) all major losers.
Another weak group, the energy stocks on concern about the health of the U.S. economy. Hess Company (HES), the big oil, down $6.52; and Massey (MEE) and Peabody (BTU) are coal producers and both had substantial losses.
Oshkosh Corp. (OSK) up $1.44. The company's fourth-quarter earnings came in above its previous guidance, or it's predicting that. The previous guidance was $0.50 to $0.65. And that is thanks to the cost-cutting measures that the firm is taking. AZZ Incorporated (AZZ), this company makes electrical equipment. And second-quarter earnings were $0.92, way up from $0.66 a year ago, $0.12 better than the Street was expecting. Moving along, Synnex Corporation (SNX) up $2.50. Third-quarter earnings there, $0.66, up from $0.46 a year ago, $0.08 above the Street estimate. Revenues up 16 percent.
And Mentor Corporation (MNT), a breast implant company, down $1.32. The Jefferies brokerage downgraded it from buy to just a hold.
NASDAQ's most active, Research In Motion (RIMM), tumbling $26.77. After the close yesterday, as we reported, second-quarter earnings at $0.86 were a penny below Street estimates, but gross margins were also slipping. And today Citigroup downgraded it from buy to hold.
Apple (AAPL) in there with a $3.69 loss. It traded as low as $1.23 today.
Microsoft (MSFT) up $0.79, bucking the trend.
Google (GOOG) down $8.56.
Then came Cisco Systems (CSCO) with a $0.34 gain.
Intel (INTC), a $0.63 advance.
Qualcomm (QCOM) down $0.70.
Oracle (ORCL), a $0.15 advance.
Amgen (AMGN) up $0.74.
And Baidu.com (BIDU) tumbled $14.75.
Elsewhere in NASDAQ trading, Perfumania (PERF) lost about 51.5 percent of its value after the company cut its third-quarter same-store sales forecast from plus 5 percent to minus 2.5 percent.
And those are the "Stocks in the News" tonight.
