TEXT OF INTERVIEW
Bob Moon: Don't bother stopping me if you've heard this one before: The bad news keeps coming for some of the biggest names in banking.
Morgan Stanley said today its quarterly earnings dropped 57 percent. Bad investment write-offs were a big part of that number.
And once again, it raises the question: When are all these big losses finally going to come to an end?
Let's put that question to Standard & Poor's chief economist David Wyss.
David Wyss: Hello.
Moon: David, we've been hearing a lot from these banks that we're in the seventh inning, this is almost over. It sure seems like this is an especially long seventh inning though. Do these numbers tell us anymore about where we are in the game?
Wyss: Well, it sure suggests the game's not over.
Moon: Can we expect more of the same or are we near the bottom here?
Wyss: I think we've got most of it behind us, but most of it probably means more like 60 percent, not 95 percent. We're getting a better idea what the losses are, who's been holding them, what the damage is going to be. The damage isn't over, but at least we're pretty sure there's a bottom to the hole. We've got a long ways to go before we're out of this and we may never know precisely when we're out of it because some of the losses will never get reported.
Moon: Let me go back to that metaphor I was drawing earlier, is it possible here that we're heading into the second game of a doubleheader and not only that but its a new team we're batting against here? We've still got on deck credit quality of corporate loans.
Wyss: Well, we've still got the credit quality of corporate loans, we've still got all the issues about what could happen to the economy itself which is going to affect the corporate borrowing. I think it's going to be a fairly normal recession there. But its more like you're in the sixth inning of the baseball game and you've still got a basketball game ahead of you.
Moon: David, what should we look for to know that this is finally turning around? What's it going to look like?
Wyss: Well, in terms the financial sector, what we have to see is an end to the write-offs. We don't think that's going to happen until at least a full year of them, so I think we have to get through at least the third quarter reports before we can even think about getting to the end. In terms of the economy, we want to start seeing home prices stabilizing, we want to see first home sales stabilizing and home prices stabilizing. I don't think home prices are going to hit bottom until a year from now.
Moon: David Wyss is chief economist at Standard & Poor's. Thanks for being with us.
Wyss: Thank you.