'It's going to be a really tough year'
And now, the fallout. More of the same seems to be the common prediction. As for who next, AIG seems to have been nominated for that post. Stacey Vanek Smith asks economist Christopher Low for his take.
Trader works on the floor of the New York Stock Exchange (Spencer Platt/Getty Images)
More on The Economy, Jobs, Wall Street, America's Financial Crisis
TEXT OF STORY
Stacey Vanek Smith: This is a lot to digest on a Monday morning. So to get a little perspective, we thought we'd check in with Christopher Low at FTN financial. Chris, help us out, here. What is going on?
Christopher Low: I'd say we're right now at the moment of truth. The companies that were in the worst shape are now out of the picture. And the question is whether people are so nervous about taking positions that funding starts to dry up for better, healthier financial organizations. So, the Fed has come in, done what they can. They've eased lending conditions for other financial firms, but it's near impossible to raise capital now. And, for that reason alone, we're in sort of uncharted territory. If companies do have difficulty financing, it's not clear how they are going to do it.
Vanek Smith: What do you think of the Fed basically deciding it's not going to bail Lehman out the same way that it bailed out Bear Stearns?
Low: I think that one of the concerns of the Fed is that by back-stopping the Bear Stearns deal, they may have actually increased systemic risk by encouraging other firms not to clean up their act and make sure that they had adequate funding and so on. So by taking a step back here, the fed is trying to signal that everyone has to look out for themselves now.
Vanek Smith: What about Bank of America? I mean, it's getting enormous.
Low: Bank of America did not get into mortgages in a big way and that means that they've got resources that these other firms just don't have. So, to be a healthy bank and a big bank in this climate is going to mean big growth and market share.
Vanek Smith: Everyone now is, of course, looking to who is going to fail next or possibly be bought out next.
Low: There's no question. This morning, what everyone is talking about is AIG, which has hired JP Morgan to look into options. I think what has people on the Street scratching their heads is why has the Fed and Treasury insist on putting these deadlines in place that are near impossible to meet. That was another aspect of the Lehman story. They were told to find a buyer or go out of business by Sunday.
Vanek Smith: What do you expect to see for the next six months?
Low: More of the same. More pressure on financial firms and, you know, until funding eases up, it's going to be a really tough year.
Vanek Smith: Chris Low is the chief economist with FTN Financial. Chris, thank you for talking with me.
Low: You're welcome.
Comments
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From Belmont, MA, 09/15/2008
You got it right, Pat. Even we commoners understood what was going down, and like the Bush government, did nothing to stop it (not that we could). Due to reckless greed and irresponsible regulation, a few thousand financial hot dogs might lose their fourth and fifth houses and the rest of us could lose most of our life savings.
Where is the rescue plan for us?
From Baltimore, MD, 09/15/2008
I am just so appalled that rampant greed in out financial sector is causing this universal meltdown. What were these CEO's, traders, etc. thinking? With salaries at the top absurd, lowered taxes for the very rich, what has happened to prudent financial thinking? I guess the lessons of the Depression have been forgotten.
Are we small stockholders through our
retirement funds etc. to blame as well?
And voters who insist on no new taxes (put the war on Uncle Sam's credit card) to blame as well? When will the American public realize what is happening. I am just totally stunned.
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