MARTIN WALKER INTERIEW - Wednesday, 17th September, 2008
TRANSCRIPT
Take a look at this front page, correction - albeit a monster one - on
the screens at the New York Stock Exchange and now exchanges all over
the financial world - or the end of Wall Street capitalism as we know
it? It depends, I guess, which optimist or pessimist you're talking to.
But an intriguing, if not baffling aspect of the fall-out from the
financial massacre is its impact, if any, on the presidential battle
going on between the Obama-Biden Democrat team and the Republicans'
John McCain and Sarah Palin. Earlier, George Negus talked through this
political imponderable with veteran Washington-watcher Martin Walker -
these days a globe trotting, by-partisan political consultant from, of
all places, Beijing.
GEORGE NEGUS: Martin, it's good to see you again. We talking
to you
from Beijing, where you're attending a conference on - of all things -
the global economy, How do you see the knock-on effect from Wall Street
affecting places like China and, in fact, the globe?
MARTIN WALKER, US POLITICAL ANALYST: It has already had a
devastating
effect upon Russia, where they had to close their stock market after it
sank about 20%. It's having an effect already on China, where the
government for some time has been trying to cool the economy and it has
just dropped interest rates and relaxed capital ratios for the banks to
try and make sure the Chinese economy doesn't suffer too much.
I was just talking to some people from the office of the Mayor of
Shenzhen and he tells me that the situation in Shenzhen with several
hundred bankruptcies already is now worse than it was in the Asian
banking crisis of '97 and '98, what we’re seeing is an
extraordinary collapse in the share markets of the emerging markets.
China, for example, is down about 60% year on year. Russia 55%. It's
really pretty grim all over.
GEORGE NEGUS: Martin, the Chinese must be laughing up their
ideological
sleeves over this. What do they make of the fact that it looks like -
and you've written about this yourself, I know - it looks like the
Americans are having to used socialist techniques to bail out the free
market economy.
MARTIN WALKER: That's right, I recently wrote a column calling
Hank
Paulson, the US Treasury Secretary, the American Lenin. He's taken more
of the financial sector of the commanding heights of the economy into
public ownership than anybody since the old communist regimes. But
that's what he was driven to by the seriousness of this. And it's
ironic that just as China is a liberalising its economy, as it's
privatising, so we see the Americans moving back to much more of a
state-owned financial sector. And it's not just the banks, it's not
just the American International Group, the big insurers. Detroit is
poised to get a $25 billion bail-out, a loan from the federal
government. And what we're seeing, and this is really worrying people
in the global economy, is that the overall debt of the US taxpayer is
going to be doubling. It was already about $5.5 trillion. It is going
up well above $10 trillion, and even if we get through this particular
crisis without more disasters, in the long term that debt is going to
weigh down upon the American economy for decades to come.
GEORGE NEGUS: Let me get you to put your American political
hat on for
a moment. Please explain to me how the Americans are going to get
themselves out of this mess by replacing a Republican president who is
probably largely responsible for this, or least oversaw the whole
thing, with another Republican?
MARTIN WALKER: The problem is that the American President
isn't quite
as powerful as most of the world tends to think he is. He shares power
with the US Congress and one reason the Democrats are having real
trouble getting traction in making political points out of this crisis
is that the Congress, both houses of Congress - the US Senate and the
US House of Representatives - are in the hands of Democrats. And
moreover when most people think about who is the archetypal figure of
Wall Street, who is the archetypal master of the universe, it is Robert
Rubin, who was US Treasury Secretary under Bill Clinton, and of course
he too was a Democrat.
So there is enough blame to go around and that is why I think Obama has
had trouble getting traction, even though he did lay out back in April
of this year a pretty serious 6-point plan of how to try and fix the
economy. But it looks as though it's got worse than that are saying it
looks as though we could be seeing more trouble with the remaining two
investment banks - that's Morgan Stanley and Goldman Sachs. We're
probably going to have to move to some kind of resolution trust
corporation system, which is the kind of machinery they used to get out
of the savings and loan crisis.
GEORGE NEGUS: Martin let's talk about McCain and Obama. It
strikes me
that Americans are faced with the invidious choice of a man who is a
self-confessed economic ignoramus - John McCain - "I know nothing about
the economy" - and this rank inexperience on something like this by
Barack Obama. That has to be an invidious choice for the poor old
American voter.
MARTIN WALKER: It is a pretty grim choice and the only way to
try and
make sense of it is to realise that we have got sort of a split in the
kind of advisers they're getting. Obama's top adviser is a man called
Kurt Volker, who used to be the Treasury Secretary in the early '80s
when he slammed up the interest rates to try to get out of that
particular crisis. McCain is being advised by people like former
senator Phil Gram, by former White House adviser Larry Lindsey, and,
funnily enough, both of them are advocating pretty much the same thing
- you've got to get back to sound money and you've also got to make
sure we don't get into a great depression.
The two things that could make this incomparably worse would be if we
it were to go into the kind of policies the US followed in 1929 to '31,
which would be to clamp down on free trade and to increase taxes. And
the point that McCain supporters are making is that those are the kind
of policies Obama is currently espousing. And that is something that
really worries a lot of the financial people I've spoken to.
On the other hand, bear in mind that for most American voters all of
this stuff taking place in Wall Street is, at least until they get
their reports on their pension funds, is a bit arcane and it's very
hard to understand and what it does mean is that Wall Street is no
longer functioning. We've got a broken credit and financial model which
is why the federal government has had to step in.
GEORGE NEGUS: And the world's greatest creditor has become the
world's
greatest debtor, as it were, in the process.
MARTIN WALKER: So it has but it's still the only game in town
when it
comes to credit formation, and there are ways out of this, what's
interesting, I think, is that nobody is complaining about the way in
which the US has adopted a kind of socialist state-ownership solution.
That's how deep the crisis is felt to be.
GEORGE NEGUS: And that is the ultimate irony - the US, of all
people,
adopting a socialist-style bail-out system. Martin, in the time we've
got left, in the next five, six weeks until election occurs on November
4, will this question dominate everything at the expense of everything
else - climate change, Iraq, all the big issues concerning the world?
Will this take over from everything else and simply become a battle of
the economic know-nothings?
MARTIN WALKER: Don't forget we have a very short attention
span in the
American electorate and if we don't see more crises coming in the next
two or three weeks, then I would have thought we would go back to the
usual American electoral choice of it's all about character. As it is,
this is no longer a transformational election. We're no longer hearing
about Obama trying to make a sweep with his black votes in the
Republican South. We're back down to our half dozen of the usual swing
states. That's where it's going to count and that's where it's going to
matter. And, funnily enough, I think one of the factors that could make
this a big economic issue in the election is that by bailing out Fannie
Mae and Freddie Mac what Paulson did was to nullify an awful lot of the
reserves of those regional banks in those states because they were
shareholders of Fannie Mae and Freddie Mac, the two big federal housing
agencies, and they're hurting. They have lost about $40 billion. If we
see bank closures in those marginal states then, yes, it's going to be
a very economic election.
GEORGE NEGUS: Martin, always good to talk to you and, as your
Chinese
hosts would probably say, we live in remarkably interesting time.
MARTIN WALKER: We do indeed.
GEORGE NEGUS: See you in Washington.
MARTIN WALKER: Look forward to it.