JUDY WOODRUFF: Another feverish day here and abroad means, yes, another attempt to make some sense of what's really happening.
And to do that tonight, we turn to Andrew Ross Sorkin, business writer and columnist for The New York Times. He's also a co-anchor on the CNBC program "Squawk Box." And Catherine Mann, an economist who watches international finance at Brandeis University, she's also a visiting fellow at the Peterson Institute for International Economics.
And we thank you both for being with us.
Andrew Ross Sorkin, I'm going to start with you since you are covering and watching these markets closely. Yesterday down, today up -- what's going on?
ANDREW ROSS SORKIN, The New York Times: It is a market that's being fed by emotion. It's being fed by fear. It's being fed by panic. And it's being fed by greed at the moment.
Fundamentals are not what this market is about right now. There is still real worry about what is going on in Europe, probably even more than what's going on in the U.S., except for the fact that there is a view that there could be a contagion, that we could ultimately be infected.
But what is really happening is what they call in the markets headline risks. People wake up in the morning and they see the headlines and they are trading off of the headlines. And what's happening in Europe right now is, there is still a severe worry about what's going to happen to Italy and Spain. Do they have too much debt?
And who owns all of that debt? Well, the banks in France, the banks in Germany, the banks in the U.K. They own the debt of the country and they own the debt of companies in those countries. And so the view is, if Italy and Spain can't ultimately come up with a plan to pay off their debts, who is going to get hit the hardest? Those banks.
If those banks get hit the hardest, they are going to stop lending. If those banks stop lending, their economies are going to start falling. If their economies -- and that means most of Europe's economies -- start falling, our economy starts falling.
You add on top of that a real disconnect in the United States about what's happening with good corporate earnings, and yet a view that we're going into our own slowdown, and you can understand how, every single day, one day, it's up, and one day, it's down.
JUDY WOODRUFF: That's a lot to worry about.
Catherine Mann, do you share Andrew's analysis?
CATHERINE MANN, Brandeis University International Business School: Basically, I think that's a very good analysis.
The only thing I would add to the market behavior is, I think there is a lot of program trading that is leading to some of the gyrations. It's not just people who are waking up in the morning and say, oh, I see the headline and I should trade, either buy or sell. I think some of it is being driven by stop-loss orders and buy orders when it hits the floor. And that's why it's gyrating so much at ups and downs.
With regard to Europe, one, I think, -- one of the things I think is most interesting about the situation with regard to Europe is that there's not any new news. If anything, we got new news about the state of our economy when the national income and product accounts were revised down, not across-the-board, but in most respects.
That hasn't happened in Europe. It's just a reprocessing of the same news over and over again, and with a few rumors added in, according to Societe Generale. So, by and large, I think, with the European situation, it's a rolling set of: There's not any new news. Maybe I should look at the old news again. Maybe I should look at that again and see how things have changed.
JUDY WOODRUFF: So that's -- Andrew, that's how investors decide what to do, by looking at old news again?
ANDREW ROSS SORKIN: Well, I think there really is a long-term concern about Europe. And there really is an issues that's going to come to a head. And the question is, when does it come to a head?
And I think all investors are trying to figure out what is the ultimate endgame in Europe. And that is an issue that people keep coming back to. And they're taking different pieces of data and different headlines, and, of course, making decisions.
But, you know, the issue of what's called high-frequency trading and electronic trading that she just mentioned is absolutely right. The reason why you're seeing these huge gains and huge losses is because there are people who are making these decisions based on the headlines, but then there are computers, there's machines that are effectively taking over and exacerbating the ups and the downs, because what they're looking to do is -- these are machines with algorithms that are looking to pick up pennies, lots of pennies in many instances.
But they're looking for one stock to go up and one stock to go down, and they see different correlations. And that's really exacerbating the big moves in volatility we're seeing in the stock market these days.
JUDY WOODRUFF: And, Catherine Mann, how does that affect the ordinary person, the ordinary investor? Or is there such a thing anymore?
CATHERINE MANN: Well, there's a good question. If you are an ordinary investor, I certainly hope that you have kind of had your head in a pillow over the past few days, because, otherwise, you would -- you would be -- it would be a horrible experience.
But I think what these gyrations do for, not just the ordinary investor, but also the person on Main Street, is, it cements their view that the -- of the disconnect between Wall Street, the big companies, whether they're financials or non-financials, the big profits that some companies get by trading on this high frequency and the ups and the downs, and the average person on Main Street.
The disconnect there has been there for a while. It's been worsened because of the lack of credit being extended to Main Street, as -- as -- even though the banks have gotten better, in better shape, they have not extended any credit to Main Street.
And so that disconnect is worse. And they really feel like Wall Street is out to get them. And they're probably right about that.
JUDY WOODRUFF: And, Catherine Mann, you are saying that is the case both in the U.S. and in Europe?
CATHERINE MANN: Well, it's certainly the case in the U.S. I think, in Europe, there is a little bit of a different situation there, because more big companies fund themselves through the banking system.
Most -- our big companies, they fund themselves through the equity markets, the bond markets and so forth. But, in Europe, the big companies do depend on the banking system a little bit more for their -- for their credit availability. And so to the extent that they worry about the stability of the banking system there, the big companies do have a little bit more to worry about.
However, the point that I would like to make about this, the debt crisis and the sovereign issues in Europe, we need to go back to the Latin American debt crisis for some instruction here. And that is that, if you take 10 years to try to resolve a sovereign debt crisis, the countries that are involved have a decade of loss.
That is what happened in Latin America. There are ways to resolve the debt crisis. Maybe it does involve some haircuts on the principal or on the interest rate or the terms of the maturity. That's what they have been talking about with Greece, some voluntary issues.
JUDY WOODRUFF: Right.
CATHERINE MANN: If that's going to have to be done, then you might as well do it now, and not have Europe swinging in the wind for 10 years.
JUDY WOODRUFF: Andrew Ross Sorkin, help us -- explain to us, if you would, how big a factor is what's going on in Europe in the instability, uncertainty here in the U.S.?
ANDREW ROSS SORKIN: I think Europe -- it's funny. You know, we had the S&P downgrade here in the U.S., and, clearly, the markets moved on that -- or at least we thought the markets were moving on that.
I would argue that the markets were moving on what was happening in Europe and the additional news that was coming out of Europe. As your other guest said, it wasn't big news, but, again, people are going back to that.
And it is just that uncertainty. And it's uncertainty in Europe and, frankly, here that is not just moving the markets. There is actually a real impact on the economy. I think we're going to see it when we see numbers in September. And it's something we all should watch out for. All of this uncertainty -- when we read these headlines this week, by the way, here in the U.S. or in Europe, it means that people aren't going out and buying things.
It means that the economy unto itself will slow simply because of the uncertainty. And I would also add it also means that people are saying to themselves, not only is there a disconnect between corporate America and Wall Street, but they are saying, maybe I shouldn't be investing in the stock market at all.
You know, there was a moment where, if you had bought into the S&P 500 10 years ago this week, you would have actually been down. And so this idea, this long-term idea that, you know, you invest in the market and you're going to make money in 401(k) plans, all of this uncertainty, I think, is raising some real questions about our own real economy.
JUDY WOODRUFF: That's a tough one to digest.
One more thing I want to ask you, Andrew Ross Sorkin, and that is, we have been hearing all these complaints about Washington from the analysts in the markets this week and last week...
ANDREW ROSS SORKIN: Right.
JUDY WOODRUFF: ... that Washington's dysfunctional, it's not able to make a decision.
So, today, President Obama says: I'm not calling Congress back from vacation. We're not going to try to do something quickly to address the debt problem.
Does that affect what's going on in the markets and the economy overall?
ANDREW ROSS SORKIN: You know, it really could cut both ways. There is some argument to be made that, actually, if they came back, they would just create some more uncertainty and we would have, you know, even more days like the ones we have just seen.
There is another argument to be made that maybe if we give them a little bit of time to calm down, the markets calm down, people come back in September, maybe cooler heads will prevail. But I do think that the markets have seen what's happened in Washington. They have considered it to be quite ugly. They had hoped for a plan that would come together at least more quickly or in a way that looked like there was some more order to it. And I think that's what has people a little bit more skittish coming into this fall.
JUDY WOODRUFF: And, Catherine Mann, just quickly, in a few words, how do you see that, whether it makes any difference whether Congress is back, what the president said?
CATHERINE MANN: If the debt crisis and -- and the debt ceiling was really that important, if it was that important to put on -- the U.S. economy on a path to fiscal rectitude, I think Congress should be back. I think they should be working on it now.
So, I think it's a mistake to let them go home.
JUDY WOODRUFF: All right.
Well, we will -- I know we're going to be coming back to all these issues again. And we thank you both for being with us.
Catherine Mann, Andrew Ross Sorkin, thank you.
CATHERINE MANN: Thank you.
ANDREW ROSS SORKIN: Thank you.