Knocking on Lehman's Door
By Daniel Politi
Slate Magazine
today's papers
Posted Tuesday, March 18, 2008, at 6:12 AM ET
Financial news continues to get top billing as all the papers try to digest the latest news from the Federal Reserve and the markets to figure out how far the current crisis will spread. The New York Times' lead story notes that although the stock market didn't plunge as was widely expected, there were several ups and downs as uncertainty ruled the day on Wall Street. By the end of the day, the Dow Jones Industrial Average closed the day with a 0.2 percent increase, largely due to the strength of J.P. Morgan, which rose due to the widely held belief that it was able to acquire Bear Stearns at a veritable bargain. The Washington Post leads locally, but off-leads news that shares of many of the largest banks and investment firms plummeted yesterday.
The Los Angeles Times leads with a look at how many are wondering whether the Fed is taking on too much risk and for how long it can keep pumping money into the economy in its attempt to save the country from a deep recession without hurting the nation's overall finances. Over the past few days, many economists have said that the key question now is not whether the country will enter into a recession, but rather how long it will last. Ordinary Americans seem to agree. USA Today leads with a poll that shows 76 percent of Americans think the country is in a recession. In addition, 79 percent said they're worried about the possibility of a depression that could last several years. The Wall Street Journal leads its world-wide newsbox with Chinese Premier Wen Jiabao saying at a news conference that the Dalai Lama is to blame for the recent violence that has broken out in Tibet. As the protests continued to spread to other parts of China, Jiabao accused the Dalai Lama of trying to get publicity and gain influence in the run-up to the Olympics.
Both the NYT and the WSJ, which devotes a separate Page One story to the subject, point out that as investors desperately tried to figure out which company could be the next to follow in Bear Stearns' footsteps they seem to have agreed on a likely candidate: Lehman Brothers. Investors see similarities between the two companies since they're smaller than their main rivals and highly dependent on the mortgage business. But, as the WSJ reports in detail, Lehman isn't willing to go quietly into the night and its executives are desperately carrying out an offensive operation to quickly dispel any rumors that might crop up about the company's financial situation. How much that will help is anyone's guess, particularly considering that it was less than a week ago that the chief executive of Bear Stearns was on CNBC talking about how the company's "balance sheet has not weakened at all."
Even if what Lehman's executives say is true and the company's finances are solid, there's good reason for them to worry if there are persistent rumors that the firm is in trouble. The WP notes that if there's one central lesson from the fall of Bear Stearns it's that "investment firms live and die on confidence." And as confidence in the markets continue to decrease, the LAT notes there are many who fear that the Fed's latest moves could turn the central bank into "the nation's chief financier, a role that it was not designed to play and its leaders dearly hope to avoid."
Everyone points out the Fed is likely to cut its benchmark short-term interest rate today by as much as one percentage point to 2 percent. But the WSJ says the cut may actually be smaller due to persistent inflation concerns.
Meanwhile, talk on Wall Street yesterday continued to center around the demise of Bear Stearns and the way the Fed put its own money forward to facilitate the acquisition by J.P. Morgan. Some expressed concern that the Fed has set a dangerous precedent and wonder whether the central bank will continue to offer up public money in order to save private institutions. In fact, as both the WP and WSJ note, it's actually possible that the Fed will be able to make money out of selling the $30 billion worth of assets from Bear Stearns, but that all depends on the markets. The LAT also points out that although many are wondering how much money the Fed has available, the truth is that it "has the capacity to create a near-infinite amount of credit," and even in the worst case scenario "taxpayers should not get stuck with the bill."
Under the headline "The Week That Shook Wall Street," the WSJ fronts an interesting and extremely detailed account of the events that led to the fall of Bear Stearns. But if you're still scratching your head over the latest financial news and why it's important, USAT has a good Q&A that starts from the very basic: "What is an investment bank, and why should I care what happens to one?"
The LAT notes that as President Bush tried to express some optimism on the economy yesterday, but was immediately criticized for words that "struck many as discordant and disengaged" when he thanked Treasury Secretary Henry Paulson "for working over the weekend." Many said that by focusing on Paulson's schedule, he immediately revealed that he "has no idea what's going on," as Rep. Barney Frank put it. Meanwhile, many Democrats were also quick to point out that the administration seems perfectly willing to back the bailout of a big investment bank while it ignores the plight of regular people who are being kicked out of their homes.
As could be expected, the topic quickly spilled into the presidential campaign, which, as the NYT points out, shows how much the economy has taken over as the main issue of the day, even as the fifth anniversary of the war in Iraq draws near. The Democratic candidates were quick to criticize the Bush administration for failing to do more to prevent the crisis from unraveling, but the LAT points out that "none of the candidates offered specific economic policy proposals beyond their past statements addressing the months-old housing mortgage crunch." Even their schedules illustrate how the contenders have been caught off-guard by the situation. Sen. Hillary Clinton was supposed to focus on Iraq this week, and Sen. Barack Obama will give what is being billed as a major speech on race today.
In the WP's op-ed page, Eugene Robinson notes that criticizing Bush is "not the same as charting a path out of this mess" and implores the candidates to start paying attention to the mess in the economy.
In other campaign news, everyone notes that Florida Democrats appear to have given up on plans to redo the state's presidential primary. This means the decision on whether to seat the state's delegates at the convention once again falls on the Democratic National Committee. Meanwhile, officials in Michigan continued to debate on whether to hold a new vote.
Worst career move ever? The WP, like many of the other papers, goes to the Bear Stearns headquarters in Manhattan–where someone taped a $2 bill to one of the building's doors–to do the requisite story about how the firm's employees are worried about their future. "Would you believe I've been here five days?" asked one employee who was outside smoking a cigarette. "Do you know where I came from? J.P. Morgan."
Daniel Politi writes "Today's Papers" for Slate. He can be reached at todayspapers@slate.com.
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