Fallout: The Financial Crisis

Weekly Wrap: Bringing up the banks

Marketplace Staff Jan 16, 2009
Fallout: The Financial Crisis

Weekly Wrap: Bringing up the banks

Marketplace Staff Jan 16, 2009


Kai Ryssdal: There was a certain been-there, done-that quality to the news this week. Congress debated the TARP again. And yesterday the Senate decided to let the Obama administration have the second $350 billion of it. And another big bank got an extra helping of TARP money. That would be Bank of America. For our weekly wrap of events on Wall Street and beyond we turn to Andy Brooks. He’s the chief trader at T. Rowe Price. And Heidi Moore this week, she’s the lead writer for the Deal Journal blog at the Wall Street Journal.com. Hi Guys.

Heidi Moore: Hello.

Andy Brooks: Hi, Kai.

Ryssdal: Heidi, I’m going to start with you. And I’m going to ask you if Ken Lewis, who is the CEO of Bank of America, was the only guy on the planet who had no idea that Merrill Lynch has big problems?

Moore: I think he actually would qualify for that distinction.

Ryssdal: That’s right.

Moore: It was — the acquisition was foreseen to just bring a whole lot of trouble in the form of toxic assets that no one was buying that continue to be market down because there are no buyers for them. And everyone knew that was going to be trouble. And, you know, Lewis was out there beating his chest about how he made this acquisition, he didn’t have to take government funds for it, and it was to prove his strength. But, now the market is rewarding something else. Now the market is saying, we’ll reward you if you admit your weaknesses, but just get your capital base where we want it.

Ryssdal: What do you think though, Andy, about where we go from here with financials? Where does the new year take us?

Brooks: Yeah. You know, this is a great question because you thought after the November lows, we had a pretty good bounce in December. And it looked like maybe financials were out of the woods, but boy, beginning of this year we’ve just gotten smacked down.

Ryssdal: I think it’s worth pointing out that that December rally is gone now, right? I mean it’s, it’s history.

Brooks: Oh yeah. And a lot of those stocks are now lower than they were in the November lows. So I think that is a very challenging sector. I think most of us are surprised, certainly I am, that financials have led us down. I will tell you that north of 40 percent of the volume in the last couple weeks, since stocks like J.P. Morgan, Bank of America, is short selling.

Ryssdal: Short selling? So people are betting the market’s going to keep on going down?

Ryssdal: Well, I think they’re betting that these stocks are going to go down and that’s put enormous pressure on these stocks. We’re getting a little rally today, which we desperately need in that group and in the market as well.

Ryssdal: Heidi, what about you? Just for my own self, I’m sick and tired of financials, and you have to believe the rest of the economy is too?

Moore: Yeah, absolutely. They’re getting so much attention. It’s like that old line from “The Brady Bunch” — “Marsha, Marsha, Marsha.”

Ryssdal: Ken Lewis, Ken Lewis, Ken Lewis.

Moore: Exactly.

Ryssdal: Well, how do we get past it then?

Moore: Well, I think what we have to do is get our heads around the problem that we had ahead of us. There is definitely more pain to come, everyone acknowledged that. Vikram Pandit of Citigroup acknowledged it today. I think as long as people don’t have a fairy tale idea of, you know, unicorns saving the market in some way, you know, you can just sort of sit tight and see what happens next and just hope there aren’t any more failures.

Ryssdal: Yeah, but Heidi, let me ask you this. If Vikram Pandit and Ken Lewis and all these guys sort of see what’s coming and they know what’s supposed to be done, why aren’t they doing it? I mean, why aren’t things getting better?

Moore: They have to make some really painful decisions. Citigroup never wanted to be anything but a universal bank. It wanted to lend money to companies, to lend money to consumers, to refinance your mortgage. And to let go of that strategy that has been the raison d’etre of Citigroup for the past 10 years is incredibly painful. And they wanted to do everything they could to avoid it. it just has to come to the point where they finally — as they say in, sort of, alcoholics anonymous, they have to admit that they have a problem.

Ryssdal: Do you really think, though, that they’ve admitted that they have a problem?

Moore: I think that they know that they can’t sit around anymore. They do have to do something strategic to save themselves.

Ryssdal: Andy, what’s your sense of whether these guys are really coming to terms with what they have to do now?

Brooks: You know, I think they’re in such a world of hurt, they are absolutely coming to terms. Are they doing everything that they need to to correct the situation as quickly as people would like? I’m sure they’re not. But, don’t forget, I don’t think anybody saw this environment coming. I don’t think anybody fully appreciated how dire things could become in the credit markets and in the economy. So, they certainly don’t like being in this position and they’re not happy about it. So, I think we have to show a little bit of empathy and . . .

Ryssdal: But if you’re getting paid hundreds of millions of dollars a year, Andy, don’t you sort of give up the right to empathy?

Brooks: Yeah. Well, I don’t know any of those guys who are getting paid hundreds of millions . . .

Ryssdal: OK, even 10 [million]. I would give up empathy for like, $27 sometimes. Come on.

Brooks: I’m not crying for them, but let me tell you, they’re in a tough spot.

Ryssdal: Andy Brooks at T. Rowe Price in Baltimore. Heidi Moore at the Wall Street Journal. Thank you both.

Moore: Thank you, Kai.

Brooks: You’re welcome, Kai.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.