Greed is not good: An interview with MSNBC’s Erin Burnett
Posted: Tuesday, September 30, 2008 9:42 pm
Erin Burnett of CNBC is not just another frequently appearing pretty TV face in the world of big-time business reporting. The anchor of CNBC’s “Street Signs” (2-3 p.m.) and co-anchor of “Squawk on the Street” (9-11 a.m.), Burnett is a former investment banking analyst at Goldman Sachs and a former vice president at Citigroup. She’s also a member of the Council on Foreign Relations and a regular contributor to NBC network news shows and “Morning Joe” on MSNBC. I talked to Burnett by telephone at 3 p.m. Thursday, Sept. 18, as stocks were soaring on word that the federal government was going to create a special entity that would handle the huge real estate debt that has brought down major financial institutions and created a crisis on Wall Street:
Q: O n a 1-to-10 scale, 10 being a meltdown, where are we right now?
A: It depends on who you ask. For many market players, this is a 9 or 10 event. You continue to see headlines discussing this as the worst crisis since the Great Depression. Some people would even say it’s the worst crisis since 1907, so if you think about it that way, you have to say it’s a 10.
If you look across America, which is something I’ve been spending a lot of time doing with CEOs of regional banks who can speak for one bank or up to 1,000 banks, there is a slow economy. That is a broader fundamental issue. But in terms of whether these banks are operating, able to get money, able to lend money, able to consider bringing in new customers and funding new projects, their answer is, “Yes, they’re able to do all those things.” So on that Main Street level, things have gotten worse, there are some real concerns, but it is most certainly not a 10. I don’t know what it is, but let’s call it a 5 or a 6.
Q: What is your sound-bite answer to a typical stockholder or nervous 401(k) owner who asks, “What the heck’s going on?”
A: Over the past few years, money is like water. There was a lot of money and that money helped big institutions lend money to all sorts of people, including regular Americans. That’s why mortgage rates were absurdly low and people could buy bigger homes than they ever thought they could buy for no money down. It’s all part of the same story. Money was easy to come by and so it was very easy to borrow. What happens for an individual homeowner or an overall economy is that at one point people start to look and say, “Wow! Should I really be lending money to this person? Does this really make sense?” And money becomes a little bit more expensive. Interest rates go up a little bit. That’s where we are seeing the strain now. It’s lax spending and you’ve got to pay the piper some day.
Q: Is another big shoe going to drop on us?
A: I wish I knew the answer to that one. Last fall eve ryone thought that the next shoe to drop was a billion-dollar write-down from a bank. Those were the big things that were causing such huge concern and fear. Then when Bear Stearns happened, everyone thought that was the final shoe. And then this summer happened and you had Fannie and Freddie and then a week later you had Lehman Brothers and Merrill Lynch. And now you have aggressive stock price drops for the two remaining independent investment banks (Morgan Stanley and Goldman Sachs). Nobody knows what the next shoe is and I think that’s the fear. It could be a commercial bank. It could be one of those investment banks. It might not be anything. But it is that fundamental uncertainty that’s really causing the system to freeze up.
Q: Where should people put their money? Should they keep it under their mattress, put it in a CD or what?
A: That’s a tough one. One of the things to emphasize to people is there are significant investment protections in place in this country…. Generally speaking, you are protected. The one thing nobody can protect you against is a big drop in market value; there’s no protection in the world that can help you from that. If you really think the market is going to keep crashing, maybe you would take your money out. But at this point, if you have gotten this far, you potentially run the risk of being one of the people who run out of the market and then you just might miss the big bounce, which is what happens to retail investors all the time.
Q: Do you put the blame for this financial crisis on any one thing or organization?
A: I don’t, and I’m not saying that to be coy. I don’t believe anyone knows exactly who is to blame. I think that is because a lot of people were to blame. Fundamentally, greed was to blame. A lot of people at a lot of different institutions in a lot of different roles — at banks, at hedge funds, regular investors, home buyers, regular people across the country — were greedy. People thought that they could invest their money an d it would be guaranteed to go up.
On a more specific level, certainly there was some real failure in the regulatory system. That doesn’t mean we need to regulate more. It just means the regulation wasn’t appropriate for the financial innovation that was out there. The lending was lax. Banks were giving loans to individuals and companies that shouldn’t have gotten them. And the people taking out those loans were not being responsible in many cases.
Q: The Wall Street Journal says there’s no end in sight for this crisis. How long do think it will last?
A: In terms of the immediate crisis right now, this sort of not knowing what is going to happen every day — and whether you are going to have to work 48 hours through the weekend at the Treasury Department and have another bailout or a crisis — that, hopefully, will start to calm a bit. But the broader issue — the long-term change in lending standards, where it might be harder to borrow, where you might have to put more money down, etc., — is probably going to last a long time. I don’t know how long, but I can tell you that the guidance I get from CEOs in the housing industry and the banking industry is that it is likely at least to the end of next year and probably well into 2010.
Bill Steigerwald is a columnist at the Pittsburgh Tribune-Review. E-mail Bill at email@example.com. ©Pittsburgh Tribune-Review, All Rights Reserved.
Published in The Messenger 9.30.08