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'Forbes' Editor: Credit Crisis Not Over Yet

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'Forbes' Editor: Credit Crisis Not Over Yet

Business

'Forbes' Editor: Credit Crisis Not Over Yet

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STEVE INSKEEP host:

And let's listen to one point of view of one of the many people trying to figure out what in the world is happening on Wall Street. Bob Lenzner, an editor of Forbes magazine, says he feels like he's watching the latest round of a heavyweight boxing match.

Mr. BOB LENZNER (National Editor, Forbes Magazine): And there have been many rounds here. First, it started with the subprime. Bank of America put two billion dollars into Countrywide credit, and everybody said, ah, the crisis is over. And then suddenly at the end of '07, Citigroup had huge write-offs, Merrill Lynch had huge write-offs, and everybody said, ah, the situation is going to get better.

INSKEEP: Write-offs mean losses, basically, acknowledging losses.

Mr. LENZNER: Yeah, right. And then we had Bear Stearns and JPMorgan where the government took on about 29 billion dollars in securities. And everybody said, I think the worst is over. And the worst wasn't over.

INSKEEP: John Thain, the CEO of Merrill Lynch was quoted saying, "I didn't expect this when I took the job."

Mr. LENZNER: Right. And at the time, John Thain said, I'm not going to have to raise any more capital. And he was completely wrong. It's absolutely extraordinary that a man of his intelligence would not have really looked deeply into the assets that were on his balance sheet. It raises serious questions about the people that have been running these major institutions. Questions about their intelligence, about their greed, questions about how little these masters of the universe understood what was going on in their own institutions.

INSKEEP: Well, let's look at Bank of America's position. If it works out, what is the position that Bank of America would be in, in a year or two years from now?

Mr. LENZNER: If it works out it'll be brilliant because they will have bought the largest mortgage brokerage firm in the world, and they will have bought the prime retail brokerage firm in the world.

INSKEEP: If I am a citizen and the way this is being solved is some firms go out of business and other firms get swallowed up by other firms, should I worry about the concentration of power in the financial industry, the way that people worry about monopolies in other industries?

Mr. LENZNER: Actually, I think I'd be more worried about the solvency of the financial system than I would be worried about that. Because there is this web of connections all over the world where people are borrowing and lending to each other trillions upon trillions of dollars, and there's nobody that knows who owes what to whom in Indianapolis, London, Shanghai, Hong Kong, Moscow, etcetera.

INSKEEP: So it's because an organization like Lehman or Merrill Lynch is at the center of these transactions that their trouble or disappearance can unsettle...

Mr. LENZNER: Yes.

INSKEEP: But still someone may be asking, if I live in Flint, Michigan, if I live in Peoria, Illinois, what do I really care about that?

Mr. LENZNER: Well, I care if I need a loan for my small business. So if I'm in Michigan or in Iowa, I'm a farmer, and I've got to borrow money to buy new tractors, I'm having a harder time because of what's happening in Wall Street than I did before this started happening.

INSKEEP: Is it fair for people to be mentioning the year 1929 and having discussions about all of this?

Mr. LENZNER: It is. But there's much more money involved now and many, many more financial institutions. And it's a global phenomenon. This is really a serious financial crisis. This is the most serious financial crisis that I've ever seen. And I don't think we're out of it yet.

INSKEEP: Bob Lenzner, national editor of Forbes magazine, thanks very much.

Mr. LENZNER: Well, I appreciate talking to you.

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