European debt crisis weighs heavily on markets

Marketplace Staff Sep 26, 2011

European debt crisis weighs heavily on markets

Marketplace Staff Sep 26, 2011

Jeremy Hobson: Well now to Washington, DC, which is on the brink of shutting down — yet again. The Senate will vote today on a short-term spending bill that’s supposed to keep the government running through mid-November. But so far, Republicans and Democrats have been unable to agree on the terms. The current spat involves disaster relief funding, and if there’s no agreement, the government could shut down by the end of the week.

Marketplace’s New York bureau chief Heidi Moore is with us live to talk about this. Good morning, Heidi.

Heidi Moore: Good morning, Jeremy.

Hobson: So this is turning into another one of these political back-and-forth stories in Washington. How concerned is Wall Street about a potential government shutdown?

Moore: Not too concerned at all. They’ve had a lot of Washington crying wolf this year, with the debt-ceiling showdown. And with the elections coming, obviously things are at a very high pitch, and Wall Street knows that. So, if there is a shutdown, it won’t be a shock like what we had with Lehman in 2008, or even anything close.

In fact, I talked to John Canally — he’s an investment strategist at LPL Financial — and I asked him what he’s hearing on Wall Street. This is what he said.

Canally: If we do go to the last minute and the government shuts down, it’s not an issue for the markets, it’s more just another reason why the public doesn’t trust Congress and doesn’t have confidence in our government to get things done.

And I think that’s a sentiment a lot of people can relate to. What Wall Street itself — the people who deal with money — are really concerned about is Europe. The Greek bailout is what is completely dominating their point of view and their focus.

Hobson: Well let’s talk about Europe, Heidi, where the news this morning is that the European Central Bank may cut interest rates. So you’re seeing a similar dynamic to the one we’ve got here, where the central bank is doing what it can — perhaps to make up for the inability of elected politicians to come to an agreement about what to do?

Moore: That’s right. Because what we’ve seen with elected politicians in these financial crises is that they like to hit the brakes long after the crash has already occured. Unfortunately, that’s not what people and the markets like to see — they want to see things happen in a calm and orderly way, where they can have some measure of certainty. So with the Greek default, for instance, there’s a chaotic way to do it — which is the current way. And there’s an orderly way, and that’s where people and the markets would like to see it go.

Hobson: Well quickly, Heidi, when it comes to that orderly way, as you say, could the Greek default really end up being — if that happens — could it end up being like Lehman, or is it really we’ve figured out what’s going to happen and it can be planned for?

Moore: Well, we know what’s going to happen, but it could be like Lehman — not because of Greece itself, but because with Greece go Italy and Spain, which are the far bigger economies with far more debt. So if Greece doesn’t get its bailout, everyone who is behind Italy and Spain who owns their debt is going to panic. And then we could end up with a real Lehman-like event. But if we take care of Greece — which is fully within our power — that won’t happen.

Hobson: Marketplace’s New York bureau chief Heidi Moore. Thanks, Heidi.

Moore: Thank you, Jeremy.

As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.

Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.

Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.

Raise a glass to Marketplace!

Just $7/month gets you a limited edition KaiPA pint glass. Plus bragging rights that you support independent journalism.
Donate today to get yours!