Wall Street Week with Louis Rukeyser; 3111; America Responds

Deal with Dick Ross so pleasant if you with David Umansky and those as you would guess focus more on the financial markets directly. What I'd like to do at this point not to know the state was for the means to wander into the guy one two three four five six seven eight nine ten and who can do that I knew you could but I guess you can't do the whole show. I think you'll find I talk for not a great amount of time of the opening you know. You know you just warm the audience up. If it was your father I asked him once. Of all the things you do when you've got such best out of them what do you enjoy most. He said you know the answer to that because you have the same privilege. I write what I please and it's printed exactly. Good evening. I'm Louis Rukeyser This is Wall Street Week. Welcome back.

What kind of people do these beasts think we are and what kind of people are we really. At the dawn of the 21st century these are the questions so many Americans answered heroically this week and that the nation will be answering more fundamentally in the coming days and indeed the coming century. Humanly militarily and economically it may appear unseemly to some in this profoundly grieving nation that we would even think of matter as economic and financial tonight. But it is right and proper that in respectful perspective we do so. Ford is not a coincidence that two of the four planes hijacked by murderers on Tuesday targeted the World Trade Center the very symbol of the economic revolution that is dramatically raising living standards on every continent and by spreading the marvelous blessings of free enterprise

and individual choice is empowering people everywhere teaching them the exciting news that they can control and improve their lives far better than the increasingly anachronistic despots and fanatics who would keep them enslaved in an evil past of hatred and deprivation. Tonight in this special program in which we will hear from five authentic titans of economics and finance. We begin as all of us should with the devastating human cost. Our hearts go out to all the families of Tuesday's victims who included two recent guests on this program. Warm and brilliant men named David Alger and Bill Meehan. As for the economic impact of these terrible events the short answer is that it will not be good despite the old myth that Wall Street thrives on war. The reverse is true. And a nation that was already

tottering on the edge of recession may now fall into it as we did in 1900. Certain industries will clearly be hurt. Airlines for example as people reduce their willingness to fly. There is already been one major casualty this week as Midway Airlines went out of business. Insurance companies as claims amount to unprecedented heights after this unprecedented calamity and then a ray of companies that depend on now frightened consumers including those in retailing media and entertainment. Some possible winners appear as well including producers of oil gold and traditional so-called safe havens like consumer staples. Plus of course some aerospace and defense companies. But the extent and the dura ability of such changes which net out to more pressure on an already beleaguered economy depend finally on you and

me for the markets like the world are moved ultimately by the unpredictable behavior of individual human beings. Will we as consumers and as investors retreat on a more permanent basis or will we step up to the plate now and say this country's future is still wondrously strong and we want to do our part now to help make it so. Exactly 40 years ago this year my friends. I first stared into the face of evil when I covered the trial of Adolph Eichmann. Not only did we see that same phase of cruelty and hatred today in Osama bin Laden but many of the world's reactions are eerily similar right down to those who would justify and appease the new genocide as they did the old throwing Israel to the wolves as we did Czechoslovakia a country that to paraphrase Britain's pre-war prime minister

Stanley Baldwin seemed far away and remote from our practical interests and understanding. Happily that is not the typical American reaction today but we are not a country renowned for our patience or our memory and the fervor we feel today must be set against the uncomfortable reality that despite similar fervor in the past. But Al Castro still rules in Havana and Saddam Hussein in Baghdad. To keep our economy strong and truly to eradicate the new terrorist threat as our leaders have promised us this week will take not only anger but sustained dedication. There we have it. Let us hope for our sake and the world that we truly do. And let me have one encouraging personal observation. Yesterday in the streets of midtown Manhattan as well as all over our nation stores were selling out of American flags and one street vendors

sign said it all these colors it red do not run. Now before we probe more deeply into the economic and financial impact of these events let's take a quick look at what has now become ancient history. But the stock market did in its one day of activity before Tuesday morning's reign of evil caused the longest suspension of trading since the start of World War One in Europe 87 years ago. Breaking in at least briefly its recent severe sell off the Dow Jones Industrial Average staged a Monday afternoon comeback that left it down a mere fraction for the day at 96 0 5. Most of the broader indexes came back a bit too in a day when the S&P 500 had earlier touched a new low for the year. Nasdaq's technology stocks indeed were showing further signs of strength in pre-market trading before the Tuesday horrors changed our lives because of the

continuing impact of these extraordinary and tragic events which no one could have predicted. We're going to give ourselves a rest for a while. There were we should note some traditional flights to presume safety in the buying of short term treasury notes whose yields fell to the lowest levels in nearly half a century and of goal with price gain more than $12 an ounce as the US dollar faltered to a six month low amid a sense of continuing crisis following the attacks. Where do we go from here. I took this evening with Dick Grasso chairman and CEO of The New York Stock Exchange. Dick how confident are you that you'll be able to resume trading on Monday morning. Lou I'm very confident and I think tens of thousands of wonderful people. From the city the state our power providers our communications providers and certainly in this industry have worked.

Hand-in-hand to bring about I think this massive recovery effort. Designed to give me a fair due a fair degree of confidence that I've I've scheduled a bell ringing ceremony for 9:30 on Monday and I am going to be very proud to watch those who will actually do it. As you know Dick there hasn't been a time since World War 1 when the New York James was closed down for four straight days. Will investors be upset by this development how do you think they'll react. Well I think. There is a benefit if I can call it that to the market that we've created here the lack of the market. Oftentimes can precipitate further if you will selling or buying if that were the case but in this circumstance this heinous crime committed against America and all Americans has caused the market to pause I think investors have had the opportunity to

step back and will until this coming Monday night there are any and make reasoned judgments. You know America is the economy of the 21st century. And I think that there is a. Benefit again is that in quotations to people not rushing to judgment to listening to the words and leadership from our president from our leaders in the House and in the Senate from all who have basically communicated that this crime this declaration of war committed against Americans and our way of life will not go unpunished and will not interrupt the great American dream in this economy. This idealism of capitalism will live and prosper and will rise above the tragedy of the moment. Do you personally feel safe now and do your employees feel safe. A little I must tell you everyone obviously is concerned about

safety and I wouldn't ask the wonderful people who come to this institution both my employees and the employees of the broker dealer community to come here. If we didn't believe that it was a safe. And sheltered environment the New York City Police Department the federal agencies that are working with our mayor and our governor are doing all that is humanly possible to make certain. That Monday will be a demonstration very clearly that America is back to business. You have said those who speculate against the American market will be dead wrong. Does that mean that you want this market to rally on Monday. Well I think that I've said what history has proven and that is that investment over the course of the 20th century. Prudent. Patient intelligent investment has been well rewarded. There may be volatility in the short term on Monday or

in the days following. But let's look back Lou to 1987 1989 1991 any period of great uncertainty in recent times. For those investors who have stayed the course who have believed in America who have invested wisely they've been hit very very handsomely rewarded. Would it surprise you this time around if stunned investors sought refuge in bonds and. Instead of buying stocks we're used to. Well no I think that you know again the short term impact. Whether it's Monday or the course of the next week or so should not be considered to be a judge mental direction of the market. Over the course of the intermediate and long term so I think that the benefit of these four days without trading. Has allowed many people yourself included Lou to remind investors that. That the right way to react

is an unemotional a reasoned and an assessment of one's reason for being in the marketplace. Don't do anything rash. And certainly certainly by our resumption of trading we're saying to those criminals who have. Created this horrific horrific tragedy that you've lost you haven't won. America is back in business. Our economy is back in business and be patient prudent long term investor. Thanks very much Dick Russell. Thank you Lou. I also talked this evening with another giant of American and international finance David H Kaminski chairman and CEO of the world's largest brokerage firm Merrill Lynch. Dave your office was next to the World Trade Center. What did you see and what has been the human and financial cost to your firm. Well Lou I was sitting at my desk. You know it's probably 500 yards

from the building and we heard the first explosion looked out of the building could see it aflame really didn't know what happened the first time we heard a plane flew into it. We evacuated want to watch buildings on the second plane struck. We were in the process of evacuating us I was second building and then we got 9000 people out of two buildings very quickly. Unfortunately we've had one confirmed fatality we have two people missing but the other side of the coin is we did get 9000 people out of that trauma not only our people the people in the industry has been significant. We are offering as much counseling aid as people possibly need. And it's a it's been a tragic week of carnage there and that the people we knew who were lost. The firefighters the policemen. It's been it's been a

very tragic event. Dave to an extraordinary extent the entire country is still in shock. What do you expect to happen when the markets reopen next week. Well you know it's somewhat of a bizarre way I think time might have been our friend as far as the markets go. We might have gotten a very emotional reaction to this on the market if if we had been capable of opening the next day. I do think the the reaction has dissipated to some extent. I think people will be more objective Monday morning as opposed to being totally emotional that there probably will be some pressure on the market. But I would I would be surprised if it was really someone extravagant extent. Actively this is not good news for the economy is it. No objectively it's not. Obviously the economy has been propelled by the consumer and his spending patterns how they will

react to a situation like this is difficult to tell. Certain sectors of the economy probably will be hurt by this and then of course other sectors will be helped but overall its auto Maje being good. What advice would you give to investors at this stage. I think its a time once again as as weve discussed on your program before for people to use their head to to invest intellectually think about what theyre doing to not let emotion rule the roost. Remember the market has past corrected a long way already. I personally feel that there are values in the market that were compelling before this happened. And I think good sound advice will generate opportunities over the next several weeks. Is there a possibility that this is done fundamental damage to the economy into the markets.

I don't think so although I would say if you saw the what as far as the markets are concerned if you saw what was going on in this city over the past couple of days to reconstruct the infrastructure to relocate tens of thousands of people to Walter at sites to clear debris. It's hard to imagine that having a fundamental effect on the markets that I don't expect and I don't I think this economy is much too vibrant much too strong and much too resonant as are the people of this country to lead any event like this credit create permanent damage. I think this this this will be a situation that will be overcome in short order. And we'll we'll get on with life. Finally then Dave in terms of specific specific areas of investment what has changed in the past week. What should investors do differently than they would have done a week ago.

I again know why I hate to speak in generalities because I know you can invest with generalities but I think the one thought that I want to leave with people is not to react with emotionally or with fear you know security's a safe view of the posits a safe take your time evaluate the opportunities. Get professional advice and I as again I repeat I think I think there will be opportunities in the market as we move forward. Thank you very much Dave. OK Lewis nice to be here again. To broaden our perspective from Wall Street to Main Street. With me tonight are three leading observers of the economy. Princeton Professor Alan Blinder was a leading economic advisor to President Clinton was appointed by him as vice chairman of the Federal Reserve Board and serves now as a partner in prominent Tory Financial Group. Tom Gallagher of the ISI Group has no peer in analyzing the links between

politics in Washington and the economy everywhere else. And Steve Forbes who joins us by satellite from his office in New York is the former candidate for the Republican presidential nomination who is now once again president and editor in chief respectively of the company and magazine that bears his family name. Steve what has changed economically and financially as a result of this week's events. Well obviously certain industries are going to be short term hurt a lot. Financial services hotels airlines and others. But I think even though the economy's taking a short term hit I think it is going to spur Washington to do things that it hadn't been doing before namely the Federal Reserve providing adequate liquidity for the economy which has not been doing in recent months. I think there's a likelihood to the Congress will pass a meaningful tax cut which wasn't likely before September 11. You think this will push us into recession. I think we're already in a recession and for a few weeks with the uncertainty the recession will

deepen. I think the seeds are going to be planted for helping us pull out of the recession by the Fed providing that liquidity and Congress finally doing something constructive and giving a meaningful tax cut including a reduction in the capital gains tax. Let me bring in Alan Blinder What's your view on what has changed this week. Well I think everything has changed. This economy as you know was sort of teetering on the brink I don't think it was in recession as Steve says but it was very very close and an event like this is bound to take a toll on consumer spending it will be a big surprise if it didn't then as you know the consumer it's been on the consumer shoulders that this economy has been. Standing now recessions don't last forever and the economy will snap back from this recession vibrantly. I'm sure but I think it's going to be a rough time between now and then. Steve suggests that this will lead to more tax cuts and easier Federal Reserve policy do you agree with that.

I rather doubt that that will lead to more tax cuts who knows actually but it's certainly leading to more government spending of various sorts. And I do think it will lead to an easier monetary policy than we would have had otherwise for the simple reason that the economy is going to be weaker and the Fed's going to have to do more. Tom Gallagher let me bring you in. What in Washington has changed the view of in terms of economic policy. Well really everything has changed. I think now both fighting and coping with catastrophic terrorism has become the overriding objective of policymakers in Washington. And from an economic perspective there is the need to use monetary and fiscal policy to address the hit to the economy as we've been discussing. But I wouldn't overlook the importance of everything else the government is doing to try to make people feel safer again I think that's the real key to how long the economy is going to be hit here the more people feel like this is a one time event. The more people going to return to normal behavior. So the success of law enforcement officials and convincing us that there won't be any follow up incidents. The success of the anti-terrorism policy including the retaliation I think will go a long way toward determining how long the

economy is affected by this. Steve wants more tax cuts. Skeptical those were the two least surprising developments of the evening. What do you think will be the mood in Congress. I think the first order of business is going to be to spend money on the immediate priorities of rebuilding in the Sistine New York and in the Pentagon and addressing the defense needs. I think the next order of business will be to see if there is a bipartisan consensus on how to provide further stimulus to the economy. So I actually I wouldn't be surprised if they can overcome the hurdle they have done a very great job in trying to work in a bipartisan way in economic issues so far. If they can do that then I think that we will see another round of stimulus. Still this year. Steve Forbes One casualty of the week would appear to be the talk about keeping Social Security surplus in a lockbox do you think that that has now vanished from our economic thinking. I hope so the whole lockbox was a myth as you know when Social Security gets money and doesn't spend it the money goes to the government and Social Security gets an IOU

whether the government spends the money rebates the money or does something else with it like paying off bondholders Social Security is left with an IOU. So the quicker we get away from the silly lock box stuff and get to what we can do to get this economy moving the better. How much do you expect defense spending to be increased. Well I think finally we will get some real defense spending increases instead of the paltry sum small sums of even this administration have been talking about. There's a lot that has to be done to rebuild what was run down in recent years. And there are a lot of new weapon systems and research that must be gotten underway especially to fight this new form of terrorism. So I think there's going to be a very different mood in Congress than there was just a few days ago. Alan what you have you in the last box question. Well I think you want to really think of the lock box as what it was which was a symbol for the need to pay down the debt over time. It was a very convenient and numerically also sensible symbol but to hold to it in a situation like this would be ludicrous. And I don't think

anybody is going to admit they had a beginning. There was beginning to be too much Hoover right sort of talk in Washington and I think that's gone now but I think once we're over this crisis restoring some fiscal prudence will take some priority again but not right now. How much do you expect defense spending to increase. Well I don't know what kind of number but I think it's going to be substantial. Of course none of us know what sort of military response there is going to be to this crisis I think. My personal opinion is likely to be significant at a time like that everybody rallies around the military and there will be more substantially more military spending I'm sure. Let me stay with you and then get back to Steve on this one because another issue in which you disagreed this evening was whether we are already in a recession. What's your view of the condition of the economy now. Well you know it's very close the last quarter was positive point 0 2 and could be revised down to a negative this quarter didn't look like it was coming in negative. But it was not coming in strong for sure. So I think you're talking

about whether you're on one side or the other side of a dividing line. There isn't any difference between us really does a slight nuances of difference I'm sure we both think the economy's been very weak for the last few quarters. And do you think it will now be much weaker. I think it will I mean as I said it's been the consumer that's been the bright spot and consumers are frightened by this as they have every reason to be and it's going to take a while to restore confidence and to restore to restore spending more to the point. In your view. What can and or should the government do to restore consumer confidence. Well I think there needs to be monetary and fiscal policy responses and there will be I think what Tom was talking about about restoring a sense of security. I'm not talking about economic security but more conventional security is crucial this is the time as many observers have said that people look to their national leaders they look especially to the president and if you notice it's a stern test for the new president to project the kind of image that Americans will follow and feel better

about what's going on. Are we going to use up the proposed projected budget surpluses over the next couple years the entire surplus. I rather doubt if that's a very large number. So the violation of the so-called lockbox there's a lot of distance between there and using up the entire unified surplus I rather doubt that will be that large. Steve what can and should the government do for the consumers confidence in your view. Well I think the key thing is to show that one they can start getting real things done on the defense front and also in terms of getting a tax bill through and if they want to do another rebate even though I don't think those do much good long term as part of a broad tax cut including capital gains. Go ahead and do it and get those checks out before Thanksgiving. But the key thing too is to get the Federal Reserve to stop dehydrating the economy the way the Bank of Japan has done their own economy and pump in liquidity like they have done I hope they don't see this is a short term measure but it's more of a longer term measure and then I think the markets would rally.

I think the economy would come back next year fairly strongly up to the hero of the American economy has clearly been the consumer whose spending is kept things moving forward however feebly. Well business investment has deteriorated. Is there a chance now that will go the other way that business investment will pick up enough to bail out the consumer. I don't think so until the businesses see that there's going to be an opportunity to have new outlets for investment. Until we get some of the regulatory hurdles that stand in the way of getting that last mile of fiber to homes and small offices I think businesses are going to be very very cautious. I think it's going to be investors and consumers are going to respond more quickly to a tax bill into easing by the Federal Reserve. I think in this case businesses will be at least for a few months lagging those to other sectors. Tom Gallagher will we get subsidies for certain industries now. I think very quickly Congress will probably do something for the airline industry I don't just today the Treasury Department actually waived penalties on paying some taxes for the airline

industry and next week that Congress will probably take some action. That's an industry of high fixed cost. No revenues for actually this week so I think you'll see some specific action on that front. The energy area was controversial before this all came up. If the price of oil escalates Will there be new action to Morton. Well that's you know that's a tough question because that's still the energy issues the argument to drill in Alaska for example still very emotional and I'm not sure that the pressure as well will be that great to change the outlook on that front. One of the things I think is important is the extent to which this anti-terrorist new policy initiative is going to affect the politics of the Middle East an even possibility of extending military action to Iraq. That's the sort of thing that could have some some impact on the energy markets. Steve will we ever feel as safe as we did we go. No not for a good long time. The fact that terrorism of that scale could happen on American soil was something we might have seen in the movies but we've never experienced it before in our national

existence. And so I think there is going to be a new sense of vulnerability that we really haven't had since the early days of the Cold War and certainly since the Second World War. So what that is going to be a fact of life but also I think it has the counterpoint that we are now finally going to do something about terrorism not just do these pinprick retaliations but go after the sources of it and the governments that support it. It's not going to be easy but it can be done that kind of thing can be suppressed just as the British suppressed piracy a century and a half ago on the high seas. We'll deal with international terrorism today. We have time for a sentence from you on that. Well I think we're not going to feel secure as we did for quite a long time I think the economy is going to snap back before this sort of sense of security snaps back frankly. Thanks very much to all three of you. Precisely what will happen to the stock market and to the economy as a result of this week's shattering events. No one not even the world class mines we heard from tonight can say with assurance but what else is new.

What's more important we can say with assurance that our country remains massively strong militarily economically and most of all in its people. Eventually that reality will reassert itself in the economy and in the financial markets. We have been given a horrible wake up call by this stunning violation of our fundamental public safety and the replications of that unprecedented shock will surely change our lives and our lifestyles throughout the new century. But as that flag vendors sign in midtown Manhattan reminded us these colors don't run. Meanwhile this has been Wall Street Week. I'm Louis Rukeyser. Good night and please stay tuned for more of PBS as America responds.