The Crisis: Wall Street Titans Speak Out
The playing field on Wall Street is completely different today, versus a year ago when Lehman Brother’s collapsed.
A series of events during the week of September 14th, 2008 including Lehman's fall, BofA buying Merrill and AIG being bailed out by the government changed everything.
The rules of engagement were different in the financial markets.
Maria Bartiromo and I had unprecedented access interviewing top executives and government officials that were involved in the decision making process.
In our one-hour special presentation “One Year Later: Reflections From The Street”, Maria Bartiromo sat down with four of the biggest names on Wall Street: John Mack – Chairman & CEO of Morgan Stanley, Larry Fink – Chairman & CEO of BlackRock, Robert Diamond – President of Barclays and Vikram Pandit – CEO of Citi.
One year later, Morgan Stanley’s Chairman & CEO John Mack says “there's calmness back in the market”, however people are still shell-shocked.
Mack said Morgan Stanleyis in a much better position now, where the firm has “raised a lot of capital. We probably have one of the highest tier, equity capital in the business”. The firm has also reduced leverage “dramatically” and “bulked up” on the risk management side.
But everyone is still concerned. Mack said, “when the crisis happened and everyone came together trying to find what's the right solution, and then the government stepped in and came up with TARP”.
Mack said Fed Chairman Ben Bernanke, then Treasury Secretary Hank Paulson and then New York Fed Head Tim Geithner deserve credit for what they did and how they did it. Mack understands the criticism, however “at the time, things were moving so quickly and so fast, I thought the reaction that they had was really outstanding. And I believe, working with other regulators around the world, really stopped a global meltdown, because it was very close”.
When Bartiromo asked Mack what the industry looks like now versus then, Mack answered “it changed”. Mack said, Morgan Stanley “will not have the kind of leverage that we saw a year and a half ago or two years ago”.
With the new regulations in place, Mack said “that has gotten all of us to look at our balance sheet, our leverage. And going forward, I think those are permanent changes”.
BlackRock's Chairman & CEO Larry Fink was one of the key players in restoring liquidity to Wall Street. Fink said things are “healing” from the year ago period, “the marketplace is responding to better information” and that the environment is less threatening from a year ago.
Throughout the crisis, Fink landed the role of the government's “go-to-guy”, valuing assets of some of the most troubled firms, including Fannie Maeand Freddie Mac , along with crippled financial giant AIG.
When asked whether Lehman should have been allowed to fail, Fink told Bartiromo “we had possibly Merrill Lynch failing, possibly AIGfailing, which were far worse problems. And I think people just did not have time to focus on the commercial paper issue, the money market paper. The reason why Lehman Brothers was so important is Lehman Brothers also used short-term funding in a very big way. People had a great deal of Lehman Brothers commercial paper. And that's what caused the Reserve Fund to ultimately fail, because they owned a lot of Lehman paper with the idea that Lehman was not going to fail, there was going to be some private resolution, maybe with some government involvement, and that obviously did not happen”.
On the economy, questions are growing throughout Wall Street whether this will be a V-shaped, U-shaped, or W-shaped recovery. Fink called it a “swish economy”, describing it like the Nike swish. It's just going to go up very modestly for the next few years. It's going to be better, but it's not going to be what we expect after a very severe recession.'
For investors looking for an edge, Fink had some advice. Fink said “you're being paid now to take on more risk in the form of equities and in the form of credit. We believe there are still opportunities in credit”.
While there are opportunities, there are also worries. Fink is worried about the dollar, “I worry about that we don't pay enough attention about how we are positioned as a country worldwide. I worry about our competitiveness as a-as a nation. I believe other countries are doing some very interesting things about stimulating businesses, what Brazil is doing now in terms of lowering taxes for companies and building long-term infrastructure projects.”