Paulson Tries To Calm Nerves On Wall Street
MICHELE NORRIS, host:
From NPR News, this is All Things Considered. I'm Michele Norris.
ROBERT SIEGEL, host:
And I'm Robert Siegel. The stock market took a big plunge today. The Dow closed down around 500 points. And for major Wall Street banks, it's been a day of marriage and rejection. Lehman Brothers, the jilted one, has filed for bankruptcy, and it is desperately trying to avoid a forced sell of its assets. And the CEOs of Bank of America and Merrill Lynch pronounced their union strong after one of the fastest courtships in modern corporate history. Also, another giant, the insurance firm AIG, is teetering. Its stock lost about half its value today.
NORRIS: We have reports coming up that will examine all these angles. First, what the day was like for Treasury Secretary Henry Paulson. NPR's John Ydstie reports.
JOHN YDSTIE: If there's any one person who is at the center of the financial storm that swept through Wall Street this past weekend, it's Treasury Secretary Henry Paulson. It was Paulson who convened the meeting of the financial community's heavy hitters to deliver a message, there would be no federal bailout for Lehman Brothers. It was time for the government to draw a line. Today, speaking at the White House, Paulson was less dogmatic. He refused to rule out the possibility of future bailouts.
Secretary HENRY PAULSON (Treasury Department): I don't take lightly ever putting the taxpayer on the line to support an institution.
Unidentified Woman: Should we read that as no more?
Secretary PAULSON: Don't read it as no more. Read it as that, you know, it's important, I think, for us to maintain the stability and orderliness of our financial system.
YSDTIE: In fact, even as Paulson was speaking, reports were circulating that the struggling insurer AIG was negotiating with the government, the Federal Reserve in particular, for a 20-billion-dollar bridge loan to help keep it afloat. Asked about that, Paulson had this response.
Secretary PAULSON: What is going on right now in New York has got nothing to do with any bridge loan from the government. What's going on in New York is a private sector effort, again focused on dealing with an important issue that is, I think, important that the financial system work on right now. And there's not more I can say than that.
YDSTIE: A private sector effort to save Lehman Brothers was what Paulson had in mind when he assembled Wall Street executives for the weekend meeting. He had hoped that a suitor like Bank of America, which had expressed interest, would buy Lehman. But without an injection of government cash, Bank of America's CEO, Ken Lewis, walked away from the deal. And his fellow leaders refused other approaches such as banding together to buy Lehman's bad assets as several companies did back in the '90s when Long-Term Capital Management's collapse threatened the financial system. Former Federal Reserve vice chairman Alan Blinder, now a professor at Princeton University, imagined the weekend's meetings this way.
Professor ALAN BLINDER (Economics and Public Affairs, Princeton University): Well, I think what you saw is the private sector on the one side and the government represented by the Treasury and the Fed on the other side engaged in a game of chicken, and neither one pulled off the road, and they collided. Probably each side was surprised that the other side didn't blink. Now, we've had the collision, Lehman is in Chapter 11, and AIG is hanging fire right now.
YDSTIE: At today's White House news conference, Secretary Paulson was asked why he chose to put taxpayer money on the line to rescue Bear Stearns in March but refused this weekend in the case of Lehman Brothers.
Secretary PAULSON: The situation and the facts around Bear Stearns were very, very different to the situation we are looking at here in September. And I never once considered that it was appropriate to put taxpayer money on the line with - in resolving Lehman Brothers.
YDSTIE: Nevertheless, Professor Blinder says he thinks Paulson's comments today have left the situation confused.
Professor BLINDER: I think the result now is that, if I may coin a phrase, nobody knows what the Paulson doctrine is. In the case of Bear Stearns, it was the Fed putting up the money but with Secretary Paulson very much a player and approving of the way the transaction was going and influencing the way the transaction was going. Now we come to Lehman, and the government says nothing. You guys in the private sector have to fix it for yourself. It doesn't leave any clear doctrine in my mind about when the government intervenes, when it does not, and if it intervenes, how?
YDSTIE: U.S. stock investors, unnerved by the weekend's events, drove the Dow Industrials down 504 points, a loss of 4.4 percent. The S&P 500 Index plunged 4.7 percent. It's the biggest one-day drop since just after the 9/11 attacks. John Ydstie, NPR News, Washington.
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