A Conversation with Art Cashin, UBS

PISANI: I just wanna finish up by going back a year and talking a little bit about Lehman Brothers. Was there ever a point at which you thought we might not make it through, that we were on the verge of going off the cliff? Was there any moment that ever happened there?

CASHIN: Absolutely. So much has happened. We tend to forget how desperate things became. Lehman goes under and shortly thereafter, there was this kind of anxious pause for a day or two. And probably known only to the Fed and to the Treasury, things were deteriorating rapidly.

But we didn't get to see all of that. And one of the oldest money market funds in the United States broke the buck, which is shorthand for saying, can't quite meet all your obligations right away. There were hundreds of trillions in money market funds.

Suddenly, it looked like there was gonna be a rush on money market funds. Now I'm watching all this. And I realize that the Fed and Treasury are panicked. And Ben Bernanke runs out and says, 'Whoa, whoa, whoa, don't take your money out of the money market fund, we guarantee all assets.' Now I'm watching one of the smartest economic minds in the United States guarantee every penny in money market funds when only $100,000 to $150,000 in each bank was guaranteed. Suddenly, money starts to run from the banks, to the money market funds to get the guarantee.

PISANI: Law of unintended consequences?

CASHIN: Absolutely. And that's when you start to say, wait a minute, who's really in charge here. Okay, the ship is in a terrible sea, in a bad storm. And you walk up and you peek in the wheelhouse and the captain and the crew are throwing punches at each other. And that's frightening.

PISANI: For me, it was that Wednesday or Thursday after the Lehman collapse during the meeting with House Speaker Nancy Pelosi when all the Congressional leaders and Bernanke came in and Paulson came in and met with them and they came out, those Congressmen, looking like they had seen dead people. They were that scared. They were white, all of them. And I think Mr. Bernanke and Mr. Paulson told them that we were in danger other than it collapsed. Shouldn't we have allowed Lehman Brothers to go under?

CASHIN: If I had my druthers, absolutely not. I think one of the things that they perhaps told... Dodd came out and said, 'That's the most sobering meeting I've ever been in.' And he'd been in politics for 30 years.

There were reports today that they were considering would they need martial law if banks failed and people took to the streets. So they were as terrified as everybody else. I think they never realized what Lehman would do, not only with the money market funds, but when the money market funds looked like they were freezing up and everybody got terrified, they stopped dealing in commercial paper.

Money markets are the major source of liquidity in commercial paper. Not to bore the viewers, but commercial paper is a very liquid, short-term borrowing thing that IBM uses, that Proctor and Gamble uses. I mean, we're not talking about financials here. We're talking about transferring from Wall Street to Main Street. These people are used to borrowing for two or three weeks. And suddenly, they were frozen out. There were no assets. And that, I think, is what terrified both Bernanke and Paulson. And they had to guarantee to try to re-liquefy.

PISANI: And the Fed, of course, maintains that there was no obvious way for them to actually take over, sell, dismember Lehman Brothers. Was there a way?

CASHIN: After you looked at the Bear Stearns deal, in which they filed a shotgun marriage at the last minute by guaranteeing an unknown amount of money, they might have done it. But given what happened after Lehman, Bob?with all due respect to the honor and credibility of the people in government -- I don't think anybody would come out and say, you know what, I took a gamble. I think I'd let them go. Of course you're gonna say, I had no way to save them.

PISANI: And of course, today, that wouldn't happen. They've already declared systemically important institutions that are out there?

CASHIN: Absolutely.

PISANI: So in a sense, we know that the probability there will be another Lehman Brothers is extremely small, right?

CASHIN: Yeah. Well, they're all too big to fail. They've seen what happens when failure occurs. If they're gonna try and correct that, that's a decade-and-a-half-long basis. So that's longer than the frame we're talking about. Yeah.

PISANI: Art Cashin from UBS, always a pleasure to talk to you. Thank you for your comments and for your years of analysis and help to all the viewers at CNBC. Appreciate it very much.

CASHIN: Thank you, Bob.

PISANI: And of course, you can see Art Cashin every day on CNBC. Thanks very much for viewing.

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