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TEXT OF INTERVIEW
Kai Ryssdal: I don’t know if you’d call it calm, exactly. But there doesn’t seem to be the same existential angst about the economy this Friday as there was last week. To get a bead on what is going on out there we’ve got Michael Mandel from BusinessWeek with us and Johs Worsoe, he runs the global markets division at Union Bank.
Gentlemen, good to have you both with us.
Ryssdal: And Michael Mandel, I’d like to start with you and I’d like to get your take on this proposition: that the immediate crisis has passed and what we need to do now is sit back and see what happens.
Michael Mandel: I wouldn’t quite say that. What we’ve done is we’ve avoided a depression. But what we’re heading
Ryssdal: Transition to what?
Mandel: Well, what we’ve had is number of years where the global economy was driven by the U.S. consumer. The U.S. consumer was borrowing in the form of credit cards, in the form of mortgages. And most of the rest of the world was shipping to the U.S. And now, that won’t work any more.
Ryssdal: Johs Worsoe at Union Bank, what are the markets telling you about where we are?
Johs Worsoe: Well, we started the week seeing some bright light in the tunnel after an equity market boom on Monday. And then we got humbled in the following of couple of days here. So I think the systemic risk is still there. There is some light in the tunnel, which is a good thing, the government has taken action. But let’s get the systemic risk behind us, which I hope we can do over the next few months, just focus on what effectively will be a reset of the economy. We’re probably going to reset ourselves back a few years, create a bottom and work from there.
Ryssdal: Mike, is that your sense, a reset of the economy?
Mandel: Reset is a word that makes it sound like we’re going back to the way we were before. I really think that we’re going to end up with a very different sort of economy than we’ve seen in the last eight to 10 years. You know, we’ve had this very bizarre economy where, starting really about 2003, wages started to, real wages started to drop, but people just kept spending. We’re just not going to see that anymore. We don’t know, a whole set of institutions, the whole set of businesses set up around consumer spending, those won’t have a place in the new economy.
Ryssdal: Johs, let me ask you this: There’s a school of thought that said we needed some kind of economic setback in this country. We had gotten so out of whack with the economic fundamentals, that our spending has to be cut back and our credit use has to be limited. Do you buy that?
Worsoe: Yeah, I do buy that. My comment on reset is really the size of the economy, the growth we had the last few years in retrospect wasn’t real. What we need to do is we need to change our behavior. So we ended up being a place where we finance everything. Saving was something that we didn’t think much about at any level. From the consumer level all the way up, credit was too readily available. So the bottom line here is that we need a behavior change. And it’s going to be a lot healthier once we change our behavior a little bit.
Ryssdal: Mike, everybody’s talking about a long recession. What is the starting point for this restarting or rebalancing or whatever we want to call it? Is it end of next year? Is it the beginning of 2010?
Mandel: You mean when does the economy start growing?
Ryssdal: Yeah, I guess that’s what I’m saying. Yeah.
Mandel: We may actually see growth next year, but it won’t be sustained; it won’t be the beginning of a long boom. We’re gonna bump along in a slow growth period. We may have some up years. We may have some down years. That’s what I mean by a transition. It’s not just a kind of return to where we were. It’s a bumpy movement to somewhere else.
Ryssdal: Johs, there’s been a lot of talk actually about a change in the economic fundamentals, about capitalism as we know it has changed. What might it look like as we get the new Congress and regulation and a new way forward on Wall Street?
Worsoe: Leverage is clearly a thing of the past, at least the degree of leverage that we’ve seen in the last few years. Nobody really realized how levered everything was. We’ve seen some hedge funds humbled now. We’re going to have a normal level of assets in each hedge fund. And so I think as that deleverage has happened, has to happen here, that’s not a bad thing. That’s a healthy thing. But this is where the behavior change comes in. People do have to save up that 20 percent that pays for the downpayment of the house. People do have to be more cautious. That means financing becomes a more normal, a more healthy addition to what you’ve saved up. And that’s what we have to see now.
Ryssdal: Mike, same question to you. What’s it gonna look like, this brave new world we’ve got going out there.
Mandel: We swung a long way to a less role for the government, and now we’re going back to what is probably a more normal level of intervention, at least for a while. You know, historically, financial markets need the government to step in occasionally during crisis. So this is, in fact, part of capitalism.
Ryssdal: Michael Mandel at Business Week and Johs Worsoe at Union Bank here in Los Angeles. Gentlemen, thanks very much.
Mandel: Thank you
Worsoe: Thank you.