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Market Tests

September 16, 2001 at 12:00 AM EST
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SPENCER MICHELS: Until Tuesday, the World Trade Center’s twin towers were the world’s most visible symbols of capitalism – anchoring the skyline of New York, acknowledged as the world’s financial center. Many of the estimated 50,000 who worked in the towers were Wall Street bankers, traders, brokers economists and business lawyers.

They worked for the more than two dozen financial firms with offices there, including Merrill Lynch, Citigroup, Morgan Stanley and Oppenheimer. Some of those firms have rented space in New Jersey to continue operations. Just five blocks from the rubble sits the world’s largest market for buyers and sellers of stock, the New York Stock Exchange.

Normally a place that sees $20 billion change hands daily, the exchange has been shut down since Tuesday’s attacks. The four-day closure is the longest since the Depression. The NASDAQ and the American Stock Exchange have also been closed, although the Chicago Mercantile Exchange reopened on Thursday.

Foreign exchanges have continued trading, and most of them have seen lower prices. European stocks plunged 5% on Friday, and Tokyo’s stocks hit a 17-year low on Thursday but partially rebounded the next day. Even before the attacks, the U.S. economy was on the cusp of recession.

The Gross Domestic Product was growing at a 0.2% rate. Unemployment was at its highest level in four years, and U.S. stocks were at their lowest since 1998. Since Tuesday, more bad news: Ford has cut factory production by 13% because it can’t get parts; General Electric has lowered its profit outlook because of losses from its insurance arm; and the price of crude oil is climbing to $30 a barrel because of uncertainty in the MidEast.

To help the fragile economy, the Federal Reserve last week pumped $45 billion into the banking system so lenders have enough cash on hand for loans. E-mail entitled “A Personal Retaliation” was one of several circulating around the country urging Americans to buy stocks or a product that supports the economy as a patriotic way to fight terrorism. An early test of the economy comes tomorrow morning when the New York Stock Exchange opens for business.

Technicians have been testing out the exchange’s communications and other systems this weekend in anticipation of a busy Monday.

JIM LEHRER: Gwen Ifill takes it from there.

GWEN IFILL: The man overseeing the effort to get the New York Stock Exchange back up and running is its chairman, Dick Grasso. I spoke with him a short time ago.

GWEN IFILL: Welcome, Dick Grasso.

DICK GRASSO: Thank you, Gwen.

GWEN IFILL: So where do you stand on the logistics of getting the New York Stock Exchange up and running tomorrow.

DICK GRASSO: Well, Gwen, I’m very proud to tell the American people and some 85 million investors that we’re ready to go, 9:30 tomorrow morning.

GWEN IFILL: Communications, transportation, it sounds like you have a lot of things to get going.

DICK GRASSO: Well, to the credit of thousands of people from the federal government, to the state government, certainly to the City of New York, all agencies of government locked arms with the private sector, surface transportation, subway, water, all of the conduits requisite to bringing up the world’s most admired marketplace are in place, ready to go, and we’re ready to send a message to these criminals, they’ve lost.

GWEN IFILL: Explain to us how you’re making this work. How do you get the phone lines to work again? How do you get all those thousands of workers in place in time for an opening bell?

DICK GRASSO: Well, to the credit of literally all of the private sector providers, whether it’s communications services, the wonderful people at Verizon have worked continuously since the tragedy – power, the folks at Con Edison, where they can’t deliver conventional power, have provided for generation on site. Transportation, the wonderful folks from the Transit Authorities here in the city of New York and in the neighboring, neighboring boroughs and certainly the neighboring states have worked hand in glove with us under the leadership of FEMA, our mayor here, and all of his team, so that as of tomorrow morning to the extent that one needs to commute to Lower Manhattan’s financial district by subway, by bus, by water, all of those services are available, and I must thank every one of those public agencies, Gwen, and certainly our private sector partners from Verizon and Con Edison and so many others who have worked to make tomorrow a possibility.

GWEN IFILL: Are you bracing for stocks to take a big hit tomorrow?

DICK GRASSO: Well, I think there is lots of speculation, but you know one thing that the criminal element that foisted this heinous crime upon America never understood was that you can take innocent lives, as they have, and it’s tragic, and we mourn their loss – you can destroy property – but you can’t destroy the American way of life; you can’t destroy the idealism of this country. Capitalism lives, Gwen, and I think that the unification that we’ve seen led by our President – both sides of the aisle politically have come together. This rally together may well indeed produce a very large surprise to people. Yes –

GWEN IFILL: You’re hoping for a rally tomorrow?

DICK GRASSO: Well, I’m not as much concerned about the performance of the market tomorrow, Gwen, as I am mindful to remind your viewers that the American way of life goes on, our economy is the strongest in the world. We’ve had great tests before – be they national tragedies or economic dislocations. We have grown; we have prospered, and we’ll do that again.

GWEN IFILL: The Washington Post reports today that some major securities firms will be allowed to band together to buy lots of stocks to offset any kind of flood of sell orders. Can you confirm that?

DICK GRASSO: Well, Gwen, I think as the SEC’s brilliant chairman, Harvey Pitt, and the Treasury Secretary have said America’s capital markets, as we’ve known them, the freest in the world, the deepest, the most admired from a regulatory standpoint will be smooth functioning. There will be no attempt to manipulate the free market process. Investors understand America is strong. Whatever happens tomorrow clearly will be looked back by those who have a long-term patient view, if indeed there is a dislocation, as a terrific opportunity.

GWEN IFILL: Tomorrow you’re going to have a group of firefighters and other rescue workers actually ring that opening bell. What message do you hope for them to send?

DICK GRASSO: Well, it’s a way I believe of the people — just here in New York but around the nation — thanking some extraordinarily talented individuals from all branches of the service whom as we speak are still crawling through that rubble in the hopes of finding one more person alive, Gwen. It’s a way of our nation – certainly our city – saying to the bravest, the finest, and all of the agencies who are right now in that pile that was once those two shining towers, thank you, we shall never forget your lost ones, and certainly we shall never forget what you’ve done for America.

GWEN IFILL: Dick Grasso, good luck tonight and tomorrow.

DICK GRASSO: Thank you, Gwen.

GWEN IFILL: Thank you.

GWEN IFILL: Now, we move on to the broader economic issues facing the nation. For that we’re joined by Susan Phillips, dean of the George Washington University School of Business and Public Management; she was a member of the Fed’s board of governors from 1991 to 1998; and Gail Fosler, chief economist at the Conference Board, a New York-based business research organization. Welcome. Gail Fosler, how important is it as the President said earlier today, for America to get back to work tomorrow?

GAIL FOSLER: Well, I think it’s tremendously important. The economy was in a very fragile state, as your segment suggested. This is an incredibly disruptive event for everyone, not just for the people who are in New York, but all around the country there has been tremendous disruption. And so it’s going to be, very difficult not to compound the impact of this event with some self-feeding impacts that come from people being cautious and, frankly, being scared.

GWEN IFILL: Susan Phillips, what to do we look for tomorrow? What are the indicators that will tell us whether this is going well or going badly?

SUSAN PHILLIPS: Well, clearly, everyone will be looking to see what happens of course at the stock market. As the financial wheels get going tomorrow, I mean clearly it’s very important that things go smoothly and that the markets open and that trade gets up and going. I think on a longer-term basis, we really have to see whether or not consumers pull back or whether or not they continue to spend.

GWEN IFILL: One of the headlines in one of the newspapers today was, “is recession inevitable?” So I lift that headline to ask you that question. Is it now?

SUSAN PHILLIPS: Well, I wouldn’t say it’s inevitable, but I do think it’s going to depend on how people react. Not only consumers. We’ll clearly get a fiscal stimulus because of the spending that’s going to occur just to deal with this tragic, tragic situation. So there’ll be some fiscal stimulus, but consumers, I mean it’s really everybody acting together that makes a difference with respect to economic growth.

GWEN IFILL: Another headline, this one said, “Collateral Damage,” in this case it was talking about the travel industry and the electricity industry and all these industries which are affected — all the stores simply closed down when this happen.

GAIL FOSLER: And I think that, to go to Susan’s answer, I mean we’re not really going to know what the under lying tone of the economy is for quite some time because there really is some absolute losses; there is activity that will never take place again; there is losses in hours; there’s going to be a very disruptive kinds of evidence coming through in terms of the economic data. And the real question is: Has some of this activity simply been displaced in time, meaning that people will go out and will eventually buy the car and make the commitment on the house and the remodeling, or has there been a permanent effect?

GWEN IFILL: Do we have yardsticks for measuring this that even work anymore?

GAIL FOSLER: Well, we have… I think that our economic information system works pretty well, and the Consumer Confidence Index, Conference Board Consumer Confidence Index, I think does tell a lot about what’s happening on the ground to individuals, how they’re perceiving it, and that calculus that’s sort of uniquely human as to whether they are concerned and whether they’re going to pull back.

GWEN IFILL: I guess what I’m thinking, also, though, is that this is something that’s never happened before. There’s no way to know how people react to something that’s never happened before. How do you account for that? Is there anything in history that would give us a guide?

SUSAN PHILLIPS: Oh, gosh, I think you really have to go back to, you know, a major… a war, something even much more disruptive. I know for example the Fed will be trying to take the pulse of various retailers, so there’ll be a lot of ways to collect information to try to see how quickly things are getting back on track. But we only get, you know, consumer confidence periodically. We only get, you know, some of the economic data periodically. But there are a lot of ways. One way, you know, look at the parking lots in shopping malls. Those are the kinds of things that we’re going to have to put together to try to assess the impact.

GWEN IFILL: We just… You just mentioned the Fed and Spencer Michels mentioned the Fed’s infusion, $45 billion this week. What did that do? What was that intended to do?

SUSAN PHILLIPS: Well, one of the most important things to do is to make sure the financial system continues to work. And whenever there is a crisis, even a hurricane, people tend to turn to a cash economy. And if they have cash, they’re able to make the purchases they need. If they don’t have cash, there’s a concern about panic. And if banks start to run out of cash, then people feel like they can’t get loans, you know, just sort of normal business can’t occur. So one of the most important things for the Fed to do is to make sure that banks are able to continue to operate, they have the cash to keep the ATM Machines filled up so that people can continue with their normal lives.

GWEN IFILL: Normal lives. What are normal lives, especially economically, after this? And how do the markets, or how does the President or how does anyone go about forcing that at this point?

GAIL FOSLER: Well, I think that normal lives, you know, we economists tend to think of people as little rational beings and they move around, you know, they make very rational calculations. If interest rates go down, they respond. Gas prices go up, they respond. And clearly we’re going to have to suspend the rational-man assumption here because I don’t think anyone in America feels particularly rational during this time. But I think that, in taking up on a point that Susan said, this liquidity and what is certainly to be very, very low interest rates, the Fed and the federal government are going to step in with almost unprecedented support to try to make those incentives so attractive to people that they will set aside their uncertainty, they’ll set aside their sense of loss and mourning — and that they’ll go about their business and they’ll do those normal things that we find it kind of hard to conceive of at this point in time. And that will reinforce some of the more positive indicators that we had before this event occurred.

GWEN IFILL: And will it offset some of the negatives? For instance, how do some of the airline industries manage for consumer jitters after this kind of an episode?

SUSAN PHILLIPS: Well, there’s going to have to be a lot of not just public relations, but education, and explanation of the various kinds of new safety techniques and procedures that are put in place. You know, I think we’re all thinking about, we’ve got to move forward, but we’re going to look back. And that I think is going to be a bit of a mantra as we move forward.

GWEN IFILL: On the same subject, consumer jitters?

GAIL FOSLER: I think that there will be more security. I had a little personal experience during this past week and when someone said to the policeman, “do I get back on this train?” And the policeman said, “this is the safest train in the United States, ma’am.” Well, we will probably have security personnel on planes that we will not be able to recognize. We will have much more serious security checks. And I think that the airlines are actually preparing for people, certainly for some extended period of time, to fly less by virtue of the cutback announcements that we’ve already seen.

GWEN IFILL: Gail Fosler and Susan Phillips, thank you both very much.