Will the subprime lending meltdown and credit crunch send us into a financial free fall? We asked the sharpest minds in business to share their reactions to the downturn, and their insights on the road ahead.
Wilbur Ross – Chairman and CEO, WL Ross & Co
I recently overheard two men arguing about who was better off. One boasted about his new car, the other about a plasma TV and so on, until one proclaimed, “I am better off because I owe more than you are worth.” The second man conceded defeat. This anecdote summarizes the mortgage bubble.
When subprime issues first surfaced this spring, many major institutions said they had none, but recent quarterly write-offs show they did. They weren’t lying; they just didn’t know what they had.
Laura Tyson – Professor, Haas School of Business, University of California, Berkeley
Chairman Greenspan said that central bankers were like drivers of a fancy new car whose mechanics they did not understand. When the car broke down and they looked under the hood, they didn’t know how the new system worked. But they did know their responsibility was to get the car running again even if they had to do some unintended damage in the process.
Jeremy Grantham – Chairman, GMO
In five years, I expect that at least one major bank (broadly defined) will have failed and that up to half the hedge funds and a substantial percentage of the private equity firms in existence today will have simply ceased to exist.
Jim Chanos – President and founder of Kynikos Associates
We don’t know how bad this gets. The problem is we don’t know how bad the hole is. And by “the hole,” I mean not only what the bad credit is but also the accounting of it.
Jim Rogers – Founder of the Rogers Raw Materials Index
We’ve had the worst bubble in credit we’ve ever had in American history. As the bubble got bigger and bigger, it spread to emerging markets and leveraged buyouts and all sorts of things. And it hasn’t been cleaned out yet. I don’t think you can have a bubble like this and clean it out in six months or even a year. It has always taken longer.