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Quest Means Business
President Obama Gives Address on Anniversary of Financial Meltdown;
Aired September 14, 2009 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN INTERNATIONAL ANCHOR: Bankrupt, bought, or simply bailed out, the state of Wall Street as seen by President Obama. It's a year since Lehman Brothers went bust.
The restless (ph) lending, the love of quick profits, those bloated bonuses, have they gone away? What's next? The "Road to Recovery."
I'm Richard Quest, it's Monday, but quite clearly, I mean business.
Good evening. It was the straw that broke the camel's back. It was one year ago today that Lehman Brothers collapsed and triggered a chain of catastrophic events, ensuring, of course, the financial world would never be the same again.
Borrowers found credit suddenly switched off. The wealth of American households fell by $5 trillion. Jobs have been lost by the million. They're still disappearing.
Governments have scrambled to keep more companies from going bust. And budget deficits have gone through the roof. A short while ago we heard from President Obama who made it clear reform is the only way forward for Wall Street.
(BEGIN VIDEOTAPE)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Unfortunately, there are some in the financial industry who are misreading this moment instead of learning the lessons of Lehman and the crisis from which we're still recovering, they're choosing to ignore those lessons.
I'm convinced they do so not just at their own peril, but at our nation's. So I want everybody here to hear my words. We will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses.
Those on Wall Street cannot resume taking risks without regard for consequences. So restoring a willingness to take responsibility, even when it's hard to do, is at the heart of what we must do.
Here on Wall Street, you have a responsibility. The reforms I've laid out will pass. And these changes will become law. But one of the most important ways to rebuild the system stronger than it was before is to rebuild trust stronger than before.
And you don't have to wait for a new law to do that. You don't have to wait to use plain language in your dealings with consumers. You don't have to wait for legislation to put the 2009 bonuses of your senior executives up for a shareholder vote.
You don't have to wait for a law to overhaul your pay system so that folks are rewarded for long-term performance instead of short-term gains.
(END VIDEOTAPE)
QUEST: Now we thought it was worthwhile, you hearing some detail there, more than a (INAUDIBLE) worth of what President Obama had to say. It might have been today, the day that Lehman Brothers went bust. And the headquarters, located near Times Square, a few miles north of where the president was speaking on Wall Street itself. Hundreds of Lehman employees worked there until the events of last summer.
Let us go to outside Lehman Brothers where Maggie Lake is waiting for us.
Maggie, that was then, this is now. Lehman is part of Barclays -- BarCap (ph), but I'm wondering whether anybody has loaned anything?
MAGGIE LAKE, CNN INTERNATIONAL CORRESPONDENT: That's the big question, of course, Richard. And there are an awful lot of people who say maybe not. I mean, certainly the feeling was very, you know, humble and chastened directly in the weeks following that. People realized that the system was so close to going off the rails.
But now a year later, you don't really have that sense of it. In fact, President Obama, in his speech today, sort of pointing out and realizing that there is a definite sense that any push for a change in regulation is really starting to stall, both in Washington and certainly on Wall Street where it looks likes they aren't going to do anything that they're absolutely not mandated to do by law.
He is sort of urging them to do the right thing today. But so far we don't see a lot of sign of that, do we?
QUEST: No. He said, and this was the clearest thing: "You need to hear what I'm saying, these rules will become law." But then he sort of appealed to a sense, if you like, of -- I was going to say, of morality, of obligation, of responsibility.
And it's at that point it all goes a bit pear-shaped.
LAKE: It does and here's the problem, you're talking about morality and the greater good, a lot of folks who work on Wall Street believe their main obligation, of course, is to their shareholders.
And in fact, the shareholders are the same general public that bailed them out. So that's where it gets a little bit sticky. You know, everybody was decrying in those months following that the animal spirits has disappeared on Wall Street. Everyone was so afraid.
Now they're coming back a bit, but it sort of reminds us what got us into this problem in the first place. So it's very complicated. Clearly President Obama taking the occasion today to remind people that they're sort of determined to try to push something through.
And things will go through. I mean, it's not like it's completely dead in the water. There will be some changes. But will they be on the scale that many had hoped for and actually thought would happen one year ago when we were sitting here? A lot of people doubt that is going to be the case -- Richard.
QUEST: Maggie Lake, outside BarCap, just by Times Square, 54th Street and 7th, as I can see over your right shoulder, probably. Maggie, many thanks, indeed. Close the wall.
Ken Rogoff is a professor of economics at Harvard University. Professor Rogoff was one of the few people who came out and warned something like this was on the way. He predicted a month before Lehman Brothers collapsed that a major American bank would go under.
A short while ago, Ken joined me on the line from Harvard, and I asked him if policy-makers had been right. Was it right to let Lehman go?
(BEGIN VIDEOTAPE)
KEN ROGOFF, PROFESSOR OF ECONOMICS, HARVARD UNIVERSITY: Well, you know, I think if you had to do it again, you'd try something else. But frankly I think they would have had to let somebody go.
Had they bailed out Lehman, there was still Merrill, Citi, AIG, they were all lined up. In fact, they were discussing them that same weekend. They really had to bailout the whole financial system. They had to spend half a trillion to a trillion dollars. How were they going to explain that to taxpayers? I think it was impossible. How were they going to explain that to themselves?
So I think it was really inevitable to do something like this, they probably should do something different, why not? But I don't think it would have saved the day.
QUEST: Wonder -- I mean, it is purely an argument now in history, but whether or not they should have in some way saved them all in one go at that weekend. But of course, at the time, many of the bankers weren't coming clean about how bad things were.
ROGOFF: No, they weren't. And you know, look, the housing market was collapsing. The economy was imploding. There were a lot of problems. The idea that Lehman caused this whole crisis is nuts. It certainly sparked a panic.
But, I mean, certainly the way I saw it in the months up to Lehman is that we had all of the symptoms of a classic deep financial crisis. Carmen Reinhart and I have looked at 800 years of them, it was looking very typical and we were calling it that way.
And I don't think there as a pretty end to this. I think the big mistakes were made at the end of the Greenspan era, not the Paulson- Bernanke over Lehman.
QUEST: So if they were -- if they had done it -- I think most people would accept they've done a fairly good job at putting out the fire, both - - on both sides of the Atlantic.
Now they have to rebuild the house, and now we're getting to the nitty-gritty, things about asking Wall Street for obligation, responsibility, new rules preventing systemic risk. This is when the fight-back comes, isn't it?
ROGOFF: Sure. Well, Richard, they've been stuffing money into Wall Street under the table every which way, not just the stuff you see. I mean, their lending, these firms, they were practically some of them, money at almost zero interest. And they're out there gambling, and you know, the casino makes money.
But it's very risky to the taxpayer. The taxpayer has taken an unconscionable risk. Yes, they had to do this, but the trouble is, is now everyone is convinced they'll never let a big firm go. So however bad it was in the run-up to Lehman, it's worse now.
They have to come in now with some significant regulations, especially cutting back on short-term borrowing where they make so much money. That's very tough politically. I want it -- the president is talking about it, but I'm not sure they're really going to do it nearly aggressively enough.
QUEST: Well, the president says you can fight -- in his speech that we've just been hearing then, you can fight it, you can go with us, it's your obligation, but it is going to become law, he says.
ROGOFF: Yes, but what? I mean, the trouble is that for the same reasons that they were so generous to the financial system in this bailout, they're scared to put in a lot of regulations and they don't -- where they might not understand how it's going to play out.
So I do believe they're going to do something, I'm just not sure it's going to be nearly enough. They're definitely putting their finger on the right place. Tim Geithner, the treasury secretary, has emphasized less -- have more capital requirements.
But how much? And how much are they going to emphasize this short- term borrowing? That's really the problem. If they were -- if Lehman had borrowed for 30 years, there wouldn't have been a run on Lehman.
It's the short-term borrowing that needs very heavy capital requirements.
(END VIDEOTAPE)
QUEST: Ken Rogoff joining me from Harvard a short while ago.
We have a tweet question for you, tonight, bringing back Twitter and e-mails. "Should Lehman have been saved?" @RichardQuest is the Twitter address. You could also get me, of course, at quest@cnn.com.
One which already came in, Bwanawater (ph): "No way should they have been saved. Their error, nothing more than that."
We will have more of your views. Should Lehman Brothers have been saved? And that, of course, you know, (INAUDIBLE) a profitable moment a little bit later in the program.
The news headlines now. And good evening, Becky Anderson, at the CNN news desk.
BECKY ANDERSON, CNN INTERNATIONAL ANCHOR: Good evening, Richard.
And these are the news headlines. U.S. intelligence is studying a new message said to be from Osama bin Laden. The audiotape says al Qaeda opposes the United States because it supports Israel. And he describes U.S. President Barack Obama as "vulnerable." Well, the tape surfaced on Islamist Web sites on Sunday, just days after the anniversary of the September 11th terrorist attacks.
Pakistan says its forces killed 16 suspected militants in its crackdown in the Swat Valley on Monday. By some estimates, as many as 159 others surrendered, a number of guns also seized. Pakistan began the operation and to clear the northwestern Swat Valley of the Taliban.
Well, life in prison, that's the punishment handed down by a British court against three men convicted of plotting to detonate liquid bombs on passenger jets. The judge called their plan on par with the September 11th attacks. Two of the British Muslims will be jailed for a minimum of 32 years before they are eligible for parole. The ringleader must serve at least 40.
And the man who threw a shoe at former U.S. President George W. Bush will be out of prison shortly. Muntadhar al-Zaidi's lawyers tell CNN the Iraqi journalist will be freed on Tuesday. Al-Zaidi's employer has been paying his salary during his incarceration. He has also been offered a house by his supporters.
For the time being, you are up to date on your headlines. For now, back to you, studio, in the Richard (sic) -- Richard in the studio, darling.
(LAUGHTER)
QUEST: We thank you for that. And we look forward to your return in a short while. Becky Anderson with the news. Now what a difference a day makes. This date a year ago was one that really did change things. We really don't know the full extent of the fallout. From London, how the crisis unfolded here and how it changed the European financial landscape.
And feelings are still raw in Hong Kong for some investors that were burned by the failure of a bank half a world away. It's QUEST MEANS BUSINESS. Good evening.
(COMMERCIAL BREAK)
QUEST: 2008, this day was when Lehman Brothers 150-year history came to an end. It was the beginning of a torrid 12 months for the global financial system. On QUEST MEANS BUSINESS, we want to look at what has changed in that time.
We're zooming in on the world's financial centers. In a moment, we'll be in Hong Kong where Eunice Yoon has the view from there.
Let's begin with Jim Boulden, who breaks down what unfolded in London.
(BEGIN VIDEOTAPE)
JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT: When it became clear that Lehman Brothers would file for bankruptcy in the United States, Tony Lomas of PricewaterhouseCoopers was called in to help liquidate Lehman Brothers' International Europe, based in London.
TONY LOMAS, BANKRUPTCY ADMINISTRATION, PRICEWATERHOUSECOOPERS: It left the U.K. companies with no option but to file. Here in the U.K. we had $3 billion worth of payments that were required to be made that weren't going to (INAUDIBLE). And that means the U.K. company was illiquid and it then had to file.
The fact was, of course, that the U.K. company filed before the parent company because business opens in London before New York.
BOULDEN: Lomas showed me around the offices of Lehman's former European chief, Jeremy Isaacs. On the top floor of the Lehman building in Canary Wharf. The office is now a dining room, noticeably absent, fine art.
Lomas says some $30 million worth of paintings still sit in the basement. They're owned by one of the U.S. Lehman subsidiaries not in bankruptcy protection.
Within days of the collapse, Lomas did sell Lehman's European equity trading business to Japanese bank Nomura. Meanwhile, the U.S. bankruptcy judge allowed the sale of much of Lehman's U.S. business to London-based Barclay's for around $2 billion.
The demise of Lehman came as a shock to many, including John Gieve, then the deputy governor of the Bank of England.
JOHN GIEVE, BANK OF ENGLAND 2006-2008: I think we'd assumed that they would be an assisted purchase, or the business would be broken up with an underpin from the government and the (INAUDIBLE) those that had been investors.
BOULDEN: From his new office across from the Bank of England, his summation of that September last year.
GIEVE: You know, I guess everyone regrets Lehman's death.
BOULDEN: Gieve was in crisis meetings with the British government throughout that weekend.
GIEVE: I'm not saying I saw that Sunday evening when we heard Lehman was going to fold, that we were going to see a crisis which would sweep away many of the biggest banks of the West. But I thought it was a risk, and I knew immediately that the markets would be looking at who is next.
BOULDEN: With stocks in freefall and credit markets seizing up, who was next was the U.K.'s biggest mortgage-lender, HBOS, which was quickly married off to Lloyds Bank, followed by the Royal Bank of Scotland in which the government took a majority stake.
Like some of Lehman's employees who lost their jobs, former executive Caroline White has given up on hedge funds and derivatives, she turned to fashion. Her first piece to be revealed this Tuesday night, a laptop bag using the Lehman's logo.
CAROLINE WHITE, DESIGNER, SUKI SHUFU: I've seamed it with a Lehman's seam because I think it's quite appropriate. I wanted to show sort of where I come from and where I'm going.
BOULDEN (on camera): So will we see the names of other banks on some of your other pieces of clothing coming down the line?
WHITE: No, there's no (INAUDIBLE) track suits or Merrill Lynch dresses, but.
BOULDEN: Or AIG shoes?
WHITE: No, no, no, I haven't -- I'm not branching out.
BOULDEN (voice-over): Tony Lomas says Lehman in London now has $9 billion and growing in the bank that will one day be shared out to creditors. He has also made a claim to try and collect a further $15 billion from Lehman Brothers in New York through the U.S. bankruptcy courts.
(on camera): How much does Lehman owe to its creditors, as it were? Do you have a figure in your mind yet?
LOMAS: That point will come at some point, maybe during the course of calendar 2010. But up until that point, we won't know what the quantum of claims are. We have very complex trading relations with a very large proportion of our counterparties. And we've got 6,000 or so live counterparties out there.
BOULDEN (voice-over): Lomas says he has no doubt in 10 years' time there will still be people in London that work unwinding Lehman International.
Jim Boulden, CNN, London.
(END VIDEOTAPE)
(BEGIN VIDEOTAPE)
EUNICE YOON, CNN INTERNATIONAL CORRESPONDENT (voice-over): This may look like a parade, but there is nothing festive about this gathering in Hong Kong. One year after the collapse of Lehman Brothers, Bernie Kwoh and others are protesting outside banks that sold them financial products backed by the now-defunct Wall Street firm.
BERNIE KWOH, LEHMAN BROTHERS INVESTOR: Never trust banks.
YOON: Kwoh says he is getting some of his million dollar investment back, but the 60-year-old retiree wants more.
KWOH: We want our money back, what we paid for is what we want back. No more, no less.
YOON: The Lehman bankruptcy soured many investors across Asia, including Hong Kong. Here citizens took to the streets after losing hundreds of millions of dollars in what they were told were extremely safe investments.
PETER CHAN, LEHMAN BROTHERS VICTIMS GROUP: We should take our responsibility if and only if we are given sufficient information. But in this, the Lehman Brothers sage, we have never been given sufficient information.
YOON: Out here in Asia, Wall Street is no longer the role model it once was. The crisis has called America's stewardship over the global economy into question.
(on camera): The crisis on Wall Street has accelerated a shift of power to Asia. Governments, banks, and companies have a louder voice than ever before.
JIM ROGERS, INTERNATIONAL INVESTOR: The largest creditor nations in the world are now China, Korea, Japan, Taiwan, Hong Kong, Singapore. All of the money is here. People are moving. Influence is moving to Asia. Power is moving to Asia. It's another very dramatic and historic shift from the West to the East.
YOON: Asian leaders such as China's premier, Wen Jiabao, are now more openly critical of the U.S. and the status of the dollar the world's reserve currency.
Peter Chan lost tens of thousands of dollars in Lehman-backed investments. He is now banking on China to help fund his retirement, buying shares of oil companies there. But Chan also has advice for any city hoping to rival Wall Street as an international finance center.
CHAN: We want to see transparency. You cannot run (INAUDIBLE) without transparency.
YOON: Another hard lesson learned by many Lehman investors.
Eunice Yoon, CNN, Hong Kong.
(END VIDEOTAPE)
QUEST: That was the picture as seen in London and Hong Kong. What's happening right now in the thick of things in New York? The Dow Jones Industrials has got another hour and 40 to trade, down -- oh, dear. Well, they're taking a bit of a break there. It's just down 8 points, now 8 points, less than one-tenth of a percent.
We'll have the details in a moment. QUEST MEANS BUSINESS (INAUDIBLE).
(COMMERCIAL BREAK)
QUEST: Now that graph tells its own story. Following the collapse of Lehman one year ago, the rout on Wall Street with the Dow Jones Industrials falling 40 percent in six months, from the low, of course back in March, we're now back up about 50 percent from that. Let's check the markets. Susan Lisovicz is at the New York Stock Exchange.
Even you, Susan, I mean, we saw such tremendous activity over the last six months, today must be a good day of activity.
SUSAN LISOVICZ, CNN FINANCIAL NEWS CORRESPONDENT: No, no. It's one giant collective yawn as to what is happening today. You know, the president spoke, he spoke one year after the demise of Lehman Brothers. But he didn't say anything new.
And in fact, some of his points may have been a little watered down perhaps because he is having such a hard time with health care. I would say the number one issue on Wall Street is a possible trade war with China.
QUEST: And that, of course, is all about the tire battle at the moment and the possible sanctions and retaliations. We'll talk about that in the days ahead. And I need you to reflect, one year on, we've already heard from London, we're heard from Hong Kong, but of course, New York was the epicenter. You were there, what was it like?
LISOVICZ: Richard, I remember vividly what it was like when I returned to Wall Street after a weekend when the unthinkable occurred. The nation's fourth-largest investment bank, a bank that survived the Great Depression, failed, was allowed to fail. That was the demarcation point in the U.S. financial crisis.
And one year later, we're far from over it.
(BEGIN VIDEOTAPE)
LISOVICZ (voice-over): The exotic instruments that brought about the biggest bankruptcy in U.S. history are still hard to grasp. But the economic destruction caused by the collapse of Lehman Brothers is not.
BERNIE MCSHERRY, SENIOR VICE PRESIDENT, CUTTONE & COMPANY: There was definitely panic in the air. I was here on this trading floor just behind us here in 1987 during the crash, and that was bad, but this was much worse. This was a feeling that the system itself was coming unglued and that perhaps when the morning -- the next morning came up, we might not have ATM cards that worked.
LISOVICZ: Lehman failed in an economy already reeling from the government's arranged marriage of Bear Stearns and its seizure of Fannie Mae and Freddie Mac. Some financial experts say it was ultimately the government's inconsistent response to failing companies, and then its warning of a financial Armageddon without passage of an emergency stimulus that triggered the panic in worldwide financial markets.
BILL ISAAC, FORMER CHAIRMAN, FDIC: The government really needs to communicate when you're in the middle of a crisis, that you're in charge, you know what you're doing, and here are the rules. This is what we're going to do to calm this situation down. And we didn't do that.
LISOVICZ: Lawrence McDonald worked at Lehman and wrote a book about it. He says the lesson of Lehman begins at the company itself. He says Lehman wasn't too big to fail, it was too big to succeed.
LAWRENCE MCDONALD, AUTHOR, "A COLOSSAL FAILURE OF COMMON SENSE": It's just too big to be managed. In essence, Susan, the same group of people that were running a $38 billion institution in 1998, the same group is -- just fast forward to 2007, is running $780 billion worth of risk.
LISOVICZ: But risk isn't as much of a threat to the economy anymore. Rather, it's the almost complete lack of risk, a credit crunch that is yet another legacy of Lehman, one year after its devastating collapse.
(END VIDEOTAPE)
LISOVICZ: The economy, just like the weather and fashion, moves in cycles. And as surely as the sun comes up tomorrow, there will be another bubble. The question is, will the financial system in the U.S. be in better shape to handle the next one when it bursts -- Richard.
QUEST: And one word, you can either plead the Fifth, you can say yes or no. Should they have let Lehman go?
LISOVICZ: No.
QUEST: We disagreed. We'll argue about that in the future. Susan Lisovicz in New York, many thanks, indeed. We'll talk about that with Susan.
Now the markets, we'll have some more of your views, of course, on the Twitter line and the e-mails before we're finished, @Richard Quest.
Let's look at the European bourses. On such an important day, you might have expected more activity than we've seen. The numbers are really rather muted. London eked out a gain, it was a small gain at best, negative territory for most of the session. mines, energy stocks.
The best -- perhaps to show you what a downish day it was, the best performer in London was BAE Systems, your British aerospace. I'm too old these days, up 2.1 percent.
Look at Frankfurt and the DAX index, the first time it has been lower for some seven sessions. Volkswagen, which continually is on that frolic of its own, Volkswagen was off 2 percent. Commerzbank was down, Deutsche Bank was down. It all contributed to actually quite a minor loss considering what happened.
But Paris and CAC 40, there you have Renault, a big loser, down 2.7. Peugeot down, Societe down, small losses which really, in the total, just give you a rather minor loss overall. Not a particularly inspiring day considering it was such an auspicious day in terms of the markets.
We move on and consider what is happening with the job market, because the European Union says nearly 1.5 million jobs are being lost every three months across the E.U. The number of people in work sank by more than half a percent in the year -- second quarter of the year compared with the previous quarter.
Payrolls contracted by 1.4 million between the end of April and June. There will be more people joining the unemployment lines soon.
Magna, that's the company buying Opel, confirmed it will cut 10,500 jobs, and that's about 4,000 in Germany. That's a story that will obviously have ramifications during the election of Angela Merkel -- or the reelection campaign of Angela Merkel.
Where were you the day that the business environment changed forever?
(BEGIN VIDEO CLIP)
ALLAN CHERNOFF, CNN SENIOR FINANCIAL CORRESPONDENT: This is absolutely stunning. Wall Street has seen very, very few days like this.
(END VIDEO CLIP)
QUEST: We'll look back at the event that (INAUDIBLE) the crisis, and cast an eye over the world Lehman Brothers left behind.
(COMMERCIAL BREAK)
QUEST: Good evening. I'm Richard Quest, this is QUEST MEANS BUSINESS. You're watching CNN.
Lehman Brothers one year ago today went into bankruptcy and subsequently collapsed. And with it, it took confidence down. As markets plunged and our wealth shriveled, people the world over were glued to their screens. Everyone wanted to know what would happen next. In a moment, we weigh the state of the global economy right now.
First, though, it is certainly worth a stand back to CNN from last September.
(BEGIN VIDEOTAPE)
JOHN ROBERTS, CO-ANCHOR, "AMERICAN MORNING": The financial markets taking a big hit overnight, following the fall of U.S. investment giant, Lehman Brothers. Lehman will file for Chapter 11 bankruptcy protection today. The announcement coming after weekend efforts to rescue the 158- year-old investment bank fell apart. Bank of America tossed a financial lifeline to Merrill Lynch. The $50 billion deal said to be all but done. And another huge Wall Street firm is in trouble. AIG, the country's biggest insurer, is seeking a government bailout.
UNIDENTIFIED FEMALE: Three of Wall Street's five independent brokerages are going to disappear. That means there is only two left, Morgan Stanley and Goldman Sachs -- a very different scenario for Wall Street.
UNIDENTIFIED MALE: This is absolutely stunning. Wall Street has seen very, very few days like this. The mortgage crisis has now taken down two of the biggest names -- the most storied names on Wall Street.
UNIDENTIFIED FEMALE: And the financial turmoil in the U.S. today claiming two giant finance. Two Wall Street firms with more than two centuries of history will soon be gone.
UNIDENTIFIED MALE: You can say that this was, if you like, the worst case scenario for many of them. And their reaction as they arrived for work -- or what was left of their work today, Monday -- was frankly one of being stunned.
UNIDENTIFIED FEMALE: Basically, I'm going to be just finishing up. That's it.
UNIDENTIFIED MALE: Are you coming back tomorrow?
UNIDENTIFIED FEMALE: No, no. That's it. That's it.
UNIDENTIFIED MALE: And you're going (INAUDIBLE) pay day?
UNIDENTIFIED FEMALE: We -- we don't know if it's at (INAUDIBLE) yet.
WOLF BLITZER, HOST, "THE SITUATION ROOM": It's one punch in the gut after another for all of us who have money in the stock market or in some of the nation's biggest investment banks, our retirement funds, all of this at risk right now. The breaking news just moments ago, you saw the Dow Jones Industrials close down more than 450 points.
(END VIDEO TAPE)
QUEST: That's what it was like when the actual events took place.
It was that event that really led us to go to this -- the flashing red, where economies of the world went into deep recession. Markets descended into panic. Confidence evaporated. And, of course, a global recession, the like of which we hadn't seen for more than a century, good - - pretty much took hold, of which we are only now coming out.
Was this financial Armageddon?
Let us just look at these wide-ranging effects. Take a look at the some of the consequences.
The Dow Jones Industrials, for instance, look at September today. The worst ever points loss -- some 778 points -- was on September the 29th. Now, that was when Citi bought Wachovia. That's when there were other events taking place that -- the credit markets had seized up. It was a good 10 days after the fall from Lehman Brothers itself. It's when the rot sat in -- set in -- $1.2 trillion was lost in the market's value. That's when that happened. It's also, of course, and forgetting momentarily the date when the Treasury bailout plan failed to pass.
The Dow is still $1,800 lower than where it was before Lehman Brothers.
To create the policy necessary so we didn't go into the Great Depression, the Federal Reserve low rates -- rates at historic lows that are now only coming back in terms of interbank rates. Interbank rates have now fallen back. Q.E. quantitative easing, a trillion dollars from the U.S. several hundred billion from the U.K. (ph) and stimulus packages -- 787 stimulus -- billion stimulus package and tens of billions more elsewhere around the world.
What it meant, of course, the big five investment banks, whether it was Bears, Goldman, Morgan of Lehmans, it didn't matter. They were humbled. It was the end of an era. Regulation had to change. It became quite clear the old rules would never be the same again.
These are just some of the effects that took place during this particular incident. Unemployment is now 9.7 percent in the United States. Similar numbers in the European Union. Within the UK, heading in the same way. Everybody accepts in these developed economies unemployment, as a long tail of the recession, will go above 10 percent. You cannot help but just look at these vast effects and really not be quite amazed that we don't -- that -- that more damage, if you like, wasn't done.
Ali Velshi is in New York -- Ali, you were there, I was here, but, frankly, neither of us ever expected to see this.
ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: No. In fact, that montage that you had at the -- at the opening of the -- the half hour on the show, it was remarkable to think that that was all one day.
Now, you'll remember, that day, September 15th, 2008, the Dow closed 508 points lower.
On the other day that you referred to, September 29th, that was the day that the bailout bill failed -- the Dow dropped 777 points. So, in fact, there was greater concern about the problem not being fixed 10 days later or more than there was about the -- the actual problem that had developed, which gives you a sense of how that crisis this day, a year ago, was the beginning of a major crisis we had -- we had evolved from the subprime crisis. This had become a worldwide global credit crisis. And it took a -- a garden variety recession and turned it into a jungle variety recession.
QUEST: On that point, I was in the States at the time covering that bailout bill, what started out as two pieces of paper...
VELSHI: Yes.
QUEST: ...hand written, virtually, which then became a thousand page bill.
VELSHI: Yes.
QUEST: But the reality was Congress' refusal to pass that initially, some say, exacerbated the situation.
VELSHI: Yes, absolutely it did. And there were lots of Congresspeople getting calls from their constituents saying I am tired of bailing out the Wall Street fat cats. And what happened, Richard, is that banks weren't lending to banks, companies went able to raise money in their normal ways. So they were faced with this reality and had to cut costs. And the quickest way to cut costs is to lay people off.
And I think that -- that realization set in between September 29th...
QUEST: Right.
VELSHI: -- which was a Monday, when the Dow dropped 777 points and that bill wasn't passed and the Friday, October 3rd, when that bill was subsequently passed. All those -- all those representatives from Congress got more calls from their constituents saying hold on, this is more serious and it does affect me...
QUEST: OK...
VELSHI: On Monday, this was a Wall Street fat cat problem. By Friday, it was everybody in America's problem.
QUEST: But have -- now, look, the reality, though, is that we come back to did -- and I don't know the answer to this necessarily...
VELSHI: Right.
QUEST: ...did Lehman have to fail?
I tend to the view that whether it was Lehman or some other bank, somebody was going to go. The fire was already flaming.
VELSHI: Yes.
QUEST: And anybody who says otherwise is just deceiving themselves.
VELSHI: Sure. Well, let's just look at the numbers. We had Countrywide fail. We had Bear Stearns fail. Then we had Fannie and Freddie sort of fail and get propped up by the government. Then we were faced with Lehman...
QUEST: But...
VELSHI: -- and then we were going to face Merrill and we were going to face AIG. So something had to happen. Lehman -- I -- I don't mean this with any disrespect -- was not as essential to the world. One more investment bank was not as essential to the world as AIG, for instance. And I have no love lost there. But the bottom line is AIG actually had real tentacles all over the world in -- in areas of business.
So something maybe had to fail to focus the mind on the fact that the government cannot bail all of them out. It's a cleansing of the system.
QUEST: But they could have -- let -- let me now switch horses in midstream, which is always a dangerous thing to do, even more so in the financial markets -- Ali, they could have saved Lehman, Merrill or Morgan (INAUDIBLE) and all the rest and made a -- that's a fact...
(CROSSTALK)
VELSHI: -- they couldn't have done it without the outrage.
QUEST: ...your jungle voracity session...
VELSHI: Yes, I...
QUEST: ...could have been just about (INAUDIBLE)...
VELSHI: But at the time -- at the time, we didn't know that, Richard. And most Americans -- and more importantly, were not convinced of how bad things were. Remember, it was after that that the worst of the job losses came. And that's what really hit it home to most people -- the big stock losses and the big job losses.
So, at the time, this was still a credit crisis. It was Wall Street's doing. It was fat cats and we were saving the jobs of Wall Streeters. It very quickly became about Americans. But on September 15th, 2008, this was still a Wall Street problem and most people were happy to see it remain a Wall Street problem.
QUEST: Ali, Susan says no to the questions -- you know, was it right to let Lehman go?
What do you say?
VELSHI: You know, on September 15th, I probably would have said no, last year. I think now, in hindsight, as I argue, something had to fail to focus the mind of -- of the legislators and of the American people. And maybe Lehman was the -- was the best candidate for that.
QUEST: All right. Ali Velshi in New York.
Wonderful, as always, to have you on the program.
Thank you very much, indeed.
Ali joining us with his insight into what happened on the markets.
Lehman's collapse unleashed panic selling and uncertainty and across the globe. We promise to show you what's changed the financial centers outside of Wall Street. In a moment, Frederik Pleitgen in Berlin.
First, though, Al Goodman, who is in Spain.
(BEGIN VIDEOTAPE)
AL GOODMAN, CNN MADRID BUREAU CHIEF: I'm Al Goodman in Madrid, outside an unemployment office, where the lines are much longer than a year ago. And you're seeing this right across the nation. Spain's jobless rate, 18 percent -- the worst in the European Union. Four million Spaniards out of work. And that's 1.5 million more than just a year ago, when Lehman Brothers collapsed.
The financial crisis cut down Spain's booming construction industry and hundreds of thousands of new homes are still unsold. Spain's tourism industry caught a deep chill and along with every other sector, is shedding jobs. These lines are expected to stay long for a long time to come.
FREDERICK PLEITGEN, CNN CORRESPONDENT: I'm Frederik Pleitgen in Berlin.
And Germany is currently in the middle of an election campaign. And believe it or not, Lehman Brothers is a topic in that campaign. The reason -- Germany has had its own Lehman Brothers. The name of the institution -- Hypo Real Estate. And just days after Lehman collapsed, it became clear that Hypo was in just as bad a state as Lehman Brothers.
The German government has since paid tens of billions of dollars to prop up Hypo. It guaranteed over $100 billion. It also (INAUDIBLE) shareholders and nationalized this bank -- all in the name of not letting something like Lehman happen in this country.
(END VIDEO TAPE)
QUEST: Al Goodman reporting there and Fred -- Fred Pleitgen, who was there before.
Now, the news headlines.
And Becky Anderson is with us at the CNN News Desk.
BECKY ANDERSON, CNN CORRESPONDENT: That's right. And a year ago, that story dominating the news headlines, of course. So, Richard, this year, a year on, we move on to the news today.
And that is that police in Karachi, Pakistan say at least 18 women and girls were killed when waiting to get free flour. Witnesses say hundreds were pushing to get into the building when guards tried to clear them, causing a stampede. Well, the giveaway was organized for one of the holy months of Ramadan.
Fraud claims delay the release of final results from Afghanistan's presidential vote. The Electoral Complaints Commission says several more weeks are needed to sort through tainted ballots. Results were to have been released this week, but mounting evidence of ballot stuffing has led to thousands of votes being tossed out.
Well, severe flooding in Georgia. Here's the scene at the Black Sea resort of Baktumi (ph). The Associated Press reports the masses of heavy rains have led to high waters in all parts of the city. Rescue teams are reportedly fanning out across the popular getaway near the border with Turkey, where at least 74 people have died in the flooding.
And in Germany, a passenger plane arriving in Stuttgart from Berlin makes an emergency landing after its landing gear gets stuck. It had to down -- touch down on foam. The Contact Air flight had 78 crew and passengers, including the chairman of one of Germany's political parties. Everyone got out safely on the slide, though one person did have minor injuries. Boys scurried (INAUDIBLE) this time or (INAUDIBLE).
Those are the headlines -- Richard, back to you.
QUEST: Becky, Becky, before you dash off, you've covered the financial world for a year or two, along with myself. You can answer yes, no or I'm not going to answer -- should Lehman have gone?
ANDERSON: Yes.
QUEST: What?
You really don't need to think about it?
ANDERSON: No.
QUEST: Right.
Thank you very much, Becky Anderson.
That's the (INAUDIBLE) discussion on that particular issue.
How do some of you believe what should have happened to Lehman Brothers?
Lisa Cass (ph) says: "I would have save Lehman Brothers and closed the loophole called Europe." Hmmm. Claws in, Lisa.
Jazz75 (ph): "For all the gurus (ph) and I.Q.s that we throw at the financial industry, it seems to be in debt. What and where is the big question."
And one more from Ace Jay (ph): "No," says Ace Jay. "Lehman should not have been saved. Have you heard of gamblers being bailed out if they lost in the casino? Reign in the casinos."
At Richard Quest -- quest@cnn.com.
We've been focusing a lot on the dark period in recent financial history. In India, many people are determined to look on the bright side as long as they can get their hands on something gold. The Business Clinic is open for business in a moment.
QUEST MEANS BUSINESS.
(COMMERCIAL BREAK)
QUEST: The Biz Clinic is open. And with it, the price of gold, which is within a few dollars and its all time high. That's the trading price on Monday -- $1,000 an ounce has been seen and come and gone quite a few times. But by and large, gold is fluctuating violently since the collapse of Lehman Brothers. Immediately after the bank failed, gold dipped to almost $700; now it's just over $1,000. Just think of that $700 to $1,000 -- that's quite a range. If you're picturing frantic traders on the floor of a high tech exchange, it's not like that.
Luckily, Mallika Kapur is here to explain in The Business Clinic, which comes tonight from Mumbai.
(BEGIN VIDEOTAPE)
MALLIKA KAPUR, CNN CORRESPONDENT (voice-over): It's a time to light candles, offer prayers, dress up and typically buy and sell gold. There's a cultural affinity for the yellow metal in India, which consumes around a quarter of the world's gold (INAUDIBLE). It's considered a safe way to collect wealth and the current festival season an auspicious time to trade the precious metal.
Let's see how that's typically done. First step, sellers dig out their gold from deep inside a cupboard or under a mattress. Believe it or not, at least (AUDIO GAP) jewelers, who charge a 5 to 15 percent commission, take it to a refiner and have it melted.
The price is what he calls. You have to accept that, otherwise forget about it. The weight and purity are what he tells you. You have to accept that, otherwise forget about it. The purity is 999.
KAPUR: Angelie Sinar (ph) is after this household gold. He wants to bring it out of homes and get it circulating through the economy instead. Sinar (ph) runs the National Stock Exchange, India's first attempt at creating a standardized, transparent market for gold trade. Under this system, anyone with gold to sell can go directly to an approved refinery. Here, gold is melted into bars or coins of an international standard. The bar is placed in a vault, the seller given a certificate, which they can trade or be exchanged through a broker whenever they want.
The idea is to make it as simple and transparent as buying and selling shares (INAUDIBLE). The challenge, says analysts, is to get rural India involved.
The rural public in India has much more gold than anybody. The rural public are prone to, you know, buying and selling gold back a century.
KAPUR: Even if 1 percent of the 20,000 or 25,000 tons of gold stashed in households hits the spot market, it would mean an extra $8 billion circulating through the economy at any time.
In India, they don't mine gold. We don't have our own gold mines. So what would be the requirement of jewelry and house (INAUDIBLE) of gold. We are dependent upon imported gold.
KAPUR: Given how high international gold prices currently are, Sinar (ph) says meeting local demand by local supply is the way forward, especially when demand for gold peaks during the festive season.
Malika Kapur, CNN, Mumbai.
(END VIDEO TAPE)
QUEST: Ah, dear Malika, who always knows a piece of good gold when she sees it. It's (INAUDIBLE) $1,000 an ounce.
The weather forecast now. Guillermo is at the World Weather Center. There are some nasty systems which you need to bring you up to date on, because, substantially, where are the risks?
GUILLERMO ARDUINO, CNN METEOROLOGIST: Hong Kong, Macau (ph), Hinan (ph) and all those big cities around -- Chenchen (ph), Guangjo (ph). And you see it here behind me.
Now, the interesting thing is that it's a tropical storm, according to the Joint Typhoon Warning Center. But the Hong Kong Observatory is calling it a typhoon.
So we have signal eight posted. This is what we may expect and also some advice, like avoid going out, if you will. Watching earlier our Hong Kong shows, we got some hits in the satellites, I'm being told, by Cord (ph), our director. And we'll see what happens. The morning shows in hours from now Asia time.
But the system is expected to make landfall within hours. And as you see to the west of Hong Kong, the winds right now in the center, 111, especially to the south and to the east is where the strongest winds and most of the precipitation is. More coming up later.
Improving in Turkey, as you see. But as Richard was reporting before, in Georgia, we got the floods. The same system pushed eastward and got all that rain over there.
Nice in some areas, but nasty in others, because these two are flirting with each other, high and low. And they are causing the chance of flooding here and the winds and severe weather and winds and rain and all that from London into coastal parts here of France and the low countries and then Matao (ph).
So you see, we are likely to see rain in London, and, therefore, we'll see some delays at airports associated with it. The radar looks good, but the forecast map shows that there are some problems, the cities here behind me.
We'll see you after the break.
Stay tuned.
(COMMERCIAL BREAK)
QUEST: We've had a pretty good look at what happened last September and why it dealt such a blow to markets and the economy. We've heard about the profound impact on Europe's financial centers. Much changed in Asia. In a moment, Emily Chang, who's in Beijing, which, of course, is widely regarded as the savior.
But first, we need to talk to Morgan Neill in Tokyo.
MORGAN NEILL, CNN INTERNATIONAL CORRESPONDENT: I'm Morgan Neill in Tokyo.
Now, what's changed here in the year since the Lehman collapse, one of the hardest hit areas has been real estate. And you can see it here all around me. A year ago, this area was filled with scores of projects under development. But after the Lehman collapse, apartment sales plummeted and the over supply of rooms led to dozens of companies going bankrupt. And that meant many projects like this one behind me came to a grinding halt.
Here in Tokyo's Oto Ward (ph), small businesses and factories have been hammered over the last year. An estimated one in four has been forced to close its doors. This business, for example, they're only using half the workers they did last year at this point. And business is down to 20 percent of what it was. And while some large manufacturers say they're starting to see a turnaround, businesses like this one say they're not seeing that filter down just yet.
EMILY CHANG, CNN CORRESPONDENT: I'm Emily Chang on Beijing's Wall Street. This is where most of the international financial institutions are located, like Goldman Sachs, J.P. Morgan and Citigroup. Since Lehman Brothers collapsed, many people working for these big banks here in China have lost their jobs or been transferred back to their home countries.
But the Chinese government has taken unprecedented steps to protect China's economy in the financial crisis. A massive stimulus package has been relatively successful. And China's GDP has continued to grow thanks to hefty government investment.
But unemployment remains a top concern, especially among migrant workers and recent college graduates. Exports and imports continue to fall and China's export-driven economic model has largely failed.
QUEST: Emily Chang and Morgan Neill.
Tonight's Profitable Moment -- I've asked (INAUDIBLE) should they have let Lehmans go bust?
Did it make things worse or merely bring about the changes that were necessary?
The reality is letting Lehman go bust made things worse in the short- term. It deepened the recession. There could be little doubt about that. Longer-term, it didn't make much difference overall. The financial bombard was well and truly alight. It has been for many months. It was only a matter of time before it destroyed a major bank.
Now with the fires damping down, it's time to think about rebuilding the houses. And today, President Obama made it clear -- new rules would become law. Bankers have a responsibility to bring about a more stable system and to share prosperity.
More broadly, will the changes do any good?
That's the important question. It's more important than whether Lehman Brothers should have been saved.
I haven't answered your question, have I -- or my own question?
Should Lehmans have been saved?
No. Probably they had to let it go. Moral hazard had evaporated. Bankers did believe there were masters of the universe. It was time to remind them who was in charge.
And that's QUEST MEANS BUSINESS for tonight.
I'm Richard Quest in London.
Hala Gorani is at the International Desk.
Whatever you're up to in the hours ahead, I hope it's profitable.
I'll see you tomorrow.
END
