Cleaning out the financial system

Marketplace Staff Sep 15, 2008
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Cleaning out the financial system

Marketplace Staff Sep 15, 2008
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Scott Jagow: The American financial system has rarely seen a day like this one. Wall Street is in crisis mode, and that’s no exaggeration. First, Lehman Brothers filed for bankruptcy this morning. The government said no bailout and no one wanted to buy Lehman, so thousands of people will lose their jobs and the bank could be liquidated.

Second, Merrill Lynch is being sold to Bank of America. That deal was sealed early this morning — $29 a share — so unlike Lehman Brothers shareholders, Merrill Lynch investors are getting something.

And, the next toppling giant might be the world’s largest insurance company, AIG. We’ll get to that in a minute. First, let’s some reaction to these two storied Wall Street firms going down. Diane Swonk is with Mesirow Financial in Chicago. Diane, how do you see this?


Diane Swonk: Well, this really is sort of the crescendo of things that could have happened and they finally did happen. It’s sort of, you know, the straw that broke the camel’s back in terms of cleaning out the system. And, as hard as this is — and it’s very hard, especially for friends of mine on Wall Street going through this personally — the reality is that this is the exact opposite of what Japan did. Japan did not deal with their problems. Our ability to face and embrace these problems and get beyond them is critical.

Jagow: The federal government really stepped back here and put the brakes on its increasing involvement in Wall Street. Is that what was needed?

Swonk: I think it is. As hard as it was, and it is for employees of Lehman, there has to be a line drawn in the sand of what the federal government’s willing to put taxpayers at risk about.

Jagow: It seems like this is such a dramatic shift in the investment banking landscape on Wall Street, because you’re losing two huge players here. How do you see this playing out down the road.

Swonk: Well, you know, it opens up — again with every change there is opportunity — and it opens up opportunity for the regional niche players, one of which I work for. So, you know I can’t say, as hard as this is, there is opportunity for us as well. We had such a Wall Street-centered view of financial markets. The reality is that not only are financial markets national, but they’re global in scope. And so of all the times for this to happen, as detrimental and as scary as it is, we do have more players and financial markets today all around the globe that are equipped to do these deals. And frankly it’s been the foreigners coming in and providing money that have been the biggest offset and backstop to the current situation, not making it worse.

Jagow: All right, Diane Swonk, the chief economist at Mesirow Financial. Thanks, so much.

Swonk: My pleasure.

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