Assessing the situation on Wall Street
Lehman has failed, Merrill Lynch is now the property of BofA and Wall Street is abuzz over what's next. Stacey Vanek Smith asks with the head of an investment firm, just how serious is this?
A woman reading the Wall Street Journal newspaper (Karen Bleier/AFP/Getty Image)
More on The Economy, Jobs, Investing, Mergers/Acquisitions, America's Financial Crisis
TEXT OF STORY
Stacey Vanek Smith: Lehman Brothers has filed for bankruptcy protection. It's the largest failure of an investment bank in almost 20 years. Lehman was the country's biggest underwriter of those now-toxic mortgage-backed securities. It had been trying to sell off some of its more valuable parts, but yesterday, the last of the buyers backed out. And Merrill Lynch is now the property of Bank of America. The country's largest brokerage agreed to sell itself to BofA for about $50 billion, that's roughly half of what it was worth last year. And Wall Street is already buzzing about who will bite the dust next. Jim Rogers heads up investment firm, Rogers Holdings. Jim, how serious is this? Is this part of a natural correction?
Jim Rogers: Stacey, it is part of a correction, but the correction is going to go on for some time. You know, America is going to have the worst, is having the worst financial and perhaps economic times since the second World War.
Vanek Smith: Who are the winners and losers going to be?
Rogers: Well, the losers are mainly going to be the financial industry, the financial community in America, because there have been gigantic amounts of foolish mistakes made and now they're starting to be -- you know, this is not fun -- but now a lot of them are going to go bankrupt, it's going to be cleaned out. Employment in the financial community is going to be greatly reduced over the next decade. And the winners will be people who are literally in agriculture, mining, energy, people who are ...
Vanek Smith: Commodities.
Rogers: Well, commodities. Our real assets are natural resources. All those people who got MBAs should have been going to agricultural school in the past 20 years.
Vanek Smith: The government has basically made a decision not to help bail out, they've made the decision not to bail out Lehman the way they did with Bear Stearns. Is that a mistake or is that the right move?
Rogers: No. They should not have bailed out Bear Stearns. That was the first mistake. Bailing out Fannie Mae and Freddie Mac was another mistake. What's happened, Stacey, is the federal government now realizes it doesn't have many bullets left. It's used up a lot of its assets bailing out people, and now if you look at the Federal Reserve, it's terribly overextended. The Federal Budget is terribly overextended. The debt situation is overextended. And you say they decided not to bail out Lehman, that's correct. But what they did do, they also said, we will let people, banks, financial institutions now come and borrow even more money from us with even less collateral.
Vanek Smith: And just really quickly, what are we going to see in the next six months?
Rogers: You are going to see more financial failures. You're going to see less credit. You're going to see a contraction of the American and world economy. Again, many people, many of us are going to have more difficult times. Some of us are going to do extremely well, but there will not be many of those.
Vanek Smith: Well, Mr Rogers thank you so much for speaking with me. I really appreciate it.
Rogers: Any time, Stacey.
Vanek Smith: Jim Rogers heads up investment firm Rogers Holdings.
Comments
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From Campbell Hall, NY, 09/30/2008
I feel they such help the home owner and then let the market work it self ,I don't feel they such help Wall St. those greedy MF, their the one's who started this mess and I feel they should pay for everything not the tax payers if I committed fraud they would come after me in a min but these greedy MF who committed fraud and predatory lending are getting away with it.I feel they should let the bankruptcy court deal with these mortgages not any of these group like neighborhood works,acorn,hope these groups just want the money congress gives them they are not helping. I went to some of these group because of my mortgage and they did noting to help us but tell us to sell our home in a short sale.I am a victim of Fraud and predatory lending.Still having problem with my Mortgage try to get it modify but our mortgage company told us no so now I am trying to see if I can get it don't threw bankruptcy court.
From Potomac, MD, 09/17/2008
I agree with Rogers. Let the markets punish the rogues instead of taxpayers bail them out. They made good money when the going was good, they over-extended themselves, now let them fall. Taxpayers will be better off with temporary chaos than with huge additional long-term debt. Paulsen asked Congress for UNLIMITED authority to bail out Fannie and Freddy. Amazingly, Congress gave it to him - and let go of its most important constitutional power, that of the purse.
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