TEXT OF INTERVIEW
Renita Jablonski: So how is Wall Street going to react when markets open this morning? Mike Moran, Chief Economist at Daiwa Securities America, is up early wondering the same. Mike, good to have you with us. The thought is with a bailout in place, liquidity is finally going to come open. You think that’s going to happen?
Mike Moran: Certainly it’s going to help. I don’t know if it’s going to completely break the logjam. We simply have to wait and see how interested institutions are in participating. There are a couple of things there, though, that might discourage institutions. For example, there are instances when the Treasury Department might want some type of equity ownership for the taxpayer. There are some limits on executive compensation, and that might keep institutions from participating in the program. And of course if they don’t participate, that’s not going to help the situation.
Jablonski: From what I understand, though, it seems like the restrictions on CEO pay could be navigated by companies fairly easily the way it’s set up right now.
Moran: I read through the legislation quickly last night, so it’s not perfectly clear exactly what the limits on executive pay are, but they’re not extreme — it relates only to the top five executives and it only kicks in after so many assets have been sold to the Treasury Department. So it’s not onerous, but it could prevent some institutions from being active in the program.
Jablonski: Let’s talk about the assets for a moment. What about pricing these securities? How much of a challenge is that going to be?
Moran: That is a huge, huge challenge, and it’s the most contentious and interesting issue related to this. If the Treasury pays a price that’s low, the taxpayer could make a lot of money on this program. On the other hand, if you pay a low price, you’re not going to be helping the financial situation. If the Treasury pays a higher price for that, you’d be more likely to break the logjam in financial markets, but the taxpayer could end up with a sizable loss on its hand.
Jablonski: Well assuming that this works, as these companies shore up their balance sheets, how will this translate to the housing market?
Moran: Well what’s likely to happen is balance sheets of financial institutions will become stronger and they’ll be more willing to lend to potential homeowners. I would say, though, that this is not going to be a magical solution. We’re not going to see the housing market improve instantaneously. We probably have to see housing prices come down a little bit more from where they are right now, so it’s going to be tight for some time.
Jablonski: Mike Moran is chief economist with Daiwa Securities America. Thanks a lot, Mike.
Moran: OK, my pleasure. Thank you.
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