Pearlstein: Wall Street Turmoil

Steven Pearlstein
Washington Post Columnist
Monday, September 15, 2008; 12:00 PM

Washington Post columnist Steven Pearlstein was online today at 12 p.m. ET to discuss the massive shifts on Wall Street today.

A transcript follows.

About Pearlstein: Steven Pearlstein writes about business and the economy for The Washington Post. His journalism career includes editing roles at The Post and Inc. magazine. He was founding publisher and editor of The Boston Observer, a monthly journal of liberal opinion. He got his start in journalism reporting for two New Hampshire newspapers -- the Concord Monitor and the Foster's Daily Democrat. Pearlstein has also worked as a television news reporter and a congressional staffer.

Pearlstein was honored with the Pulitzer Prize for commentary for his columns about mounting problems in the financial markets. His award was one of six Pulitzer Prizes won by The Washington Post this year.

Read Pearlstein's latest columns.


Wall Street: Could you explain the underlying basis for Wall Street's irrational response to the Lehman failure? If the Fed has continued to pump billions into the market place and the economy is on "sound footing" why the panic? Is it just an emotional response? I find it interesting that when main street panics over kitchen table issues such as wage declines, job losses and health insurance Wall Street wags it finger at us and tells us things are not as bad as main street presents it. But when Wall Street screams bloody murder we are expected to drop everything and assist them with a taxpayer bailout. What is the dynamic here?

Steven Pearlstein: Well, that's an interesting question, but the truth is that in this case there was no bailout, in the sense you mean it. The Fed refused, at the Treasury's urging, not to do for the purchase of Lehman Brothers what it did to engineer the purchase of Bear Stearns, to get it into stronger hands (JP Morgan Chase). And that was to provide JP Morgan a floor to losses from real estate assets, going forward.

I think you really don't capture the attitude of Wall Street in your question. First of all, Wall STreet doesn't care a fig about Main Street or the economy -- it really doesn't. And it doesn't really expected the rest of us to help them because it is so arrogant it never contemplates the fact that we might need to. Wall Streeters live in a self-contained bubble, and they see any government involvement simply in terms of market dynamics, not in terms of the impact on real people or the real economy.


Washington, D.C.: My husband and I have substantial term life insurance policies with AIG. Should we be worried? What should we do?

Steven Pearlstein: There is an industry insurance fund. I wouldn't think it is a big problem but in reality, there isn't anything you can do about it now. Don't be afraid of losing everything -- that's not the danger. The danger is if you die in the very short term and can't collect because the company is tied up in some conservatorship.


Bowie, Md.: Where are the SWF in all of this? Weren't they snapping up an interest in these wall street firms in exchange for a larger position in the company? Had any of the wealth funds invested heavily in Lehman?

Steven Pearlstein: No.


Fannie Mae and Freddie Mac: Has the government decided if they will honor Fannie and Freddie's outrageous compensation packages for their respective CEOs? No 'Golden Parachutes' for Fannie, Freddie's Ex-Chiefs (Post, Sept. 15)

Steven Pearlstein: The regulator has decided he won't honor the employment contracts as it relates to severance without "cause," on the general principle that there was cause. They'll probably get to collect their salaries for the year, and nothing else. They will probably also get to take away money that was previous earned but deferred. They won't get any vesting of unvested stock options. And of course the restricted stock they hold is now worthless. So good news: they won't get golden parachutes. And you know what : nobody is really better off because of it, except that we all FEEL better. The amount of money involved, in the larger scheme of things, is piddle.


Wondering what it all means in Oakton, Va.: Hello Steven,

Just a quick note to thank you for your Q&As... I'm relieved that someone is out there that can rationally explain what's going on with the markets - and with the US economy as a whole - to those of us with a mere 1 or 2 liberal arts degrees.

And a quick question. Does this "activity" mean that we're headed - or already in - an economic situation similar to Europe in the '80's? Essentially the economy goes nowhere for years. I'm sure there's a more elaborate economic term for it.

Steven Pearlstein: Thanks for your thanks.

You are probably right that while the economy is not likely to tank, we're in for a couple of years of no or very slow growth that won't feel very good. That's part of our punishment, in market terms, for living beyond our means for so long: a depreciating currency, a big reduction in our weath through reduction in the value of our assets (stocks, houses, other investments) and below par growth.


Arlington, Va: My wife and I have life insurance policies with AIG. What happens to them if AIG goes under? What should I do in that event? Will I need to get new policies?

Steven Pearlstein: I suspect you won't have to get new policies, that the old policies will wind up in the hands of a new insurer.


Arlington, Va.: Does the Lehman case signal the end of big government bail outs for the investment banks? Isnt it a good sign that without government interferance the markets can more quickly work out there losses and move toward a sound financial position.

Steven Pearlstein: It is a good sign, but its not necessarily the end. There will be need for other government involvement as we move through this process of restructuring and shrinking of the financial sector, deleveraging, etc. Look next for a injection of federal funds into the FDIC's bank insurance fund. As I have written on many occasions, however, the government may wind up making money on these deals, to the benefit of taxpayers.


Washington, D.C.: If the problem was that the big banks had too much debt, what implications does that have for our government, with its 500 billion dollar deficit? Isn't it completely irresponsible for candidates to be talking about sex education or gun control instead of what they are going to DO about this?

Steven Pearlstein: There aren't big implications so long as the world is willing to finance our debt at fairly reasonable rates, which is very much still the case.

As to your political point, they do look a bit silly in the face of all the important things that are happening, to be talking about such things.


Bethesda, Md.: Finally the Fed permits market forces and not government cash to determine the future of one of the Wall Street investment banks. I for one am gratified that the Fed stepped back and allowed Lehman to fail. The chicken littles of the world may declare that the sky is falling but I think the economy will weather this crises just as it would have had Bear Sterns been allowed to collapse.

Steven Pearlstein: You may well be right. But don't make the mistake of saying that if the government had done nothing in all instances, it would have turned out the same way. We don't know that. And I suspect it is not true. Policy makers have to consider the actual condition of each institution, its interconnectedness with other institutions, the market psychology at the time, etc. There is no one right answer like always intervene or never intervene.


New York, N.Y.: Mr. Pearlstein - As someone who is far from completely knowledgable about finance and and markets, my gut fear with Bush's private accounts for Social security was always that the market is still too risky. Does this Lehman/Bear Stearns situation prove that Bush's plan is too much of a gamble as an equivalent to Social security, that even 100 year old banks aren't reliable?

Steven Pearlstein: Yeah, I don't hear anyone talking private accounts any more. Good point.


Woodbridge, Va.: What I can't get over is the apparent sheer number of subprime loans that have done these banks in - am I correct in saying that there are more low income borrowers in this country than higher income borrowers with jobs and good credit?

Steven Pearlstein: It goes well beyond subprime loans, although there were certainly a lot of those written between 2005 through 2007. It was a more generalized credit bubble of which subprime was a big part.


South Riding, Va.: It seemed to me that this came very quickly. I heard about Lehman Brothers Saturday and they were saying Merrill Lynch and AIG were likely to be next. Did I miss all of the earlier warnings or did this all really unfold over the weekend?

Steven Pearlstein: Sorry to say, if you missed it, you weren't paying very close attention.


Glenmont: Please pardon my ignorance, but as an individual with money in the bank (money market account), a house that I'm trying to pay off as fast as possible, and a couple of different stock funds, my main question is: how safe is my money?

What's the worst case scenario for ordinary small-time folks like me, and should I be planning for it now? I've got enough resources, that if I liquidate absolutely everything, I could pay off my mortgage. Then if the financial system collapses completely, I'll at least have my house.

Steven Pearlstein: I don't think you have to do that. You want your money in institutions that have some sort of guarantee for small investosr and savers, either government or an industry insurance fund. You probably already do, and don't know it. But one word of caution: money-market funds are NOT guaranteed to pay back a dollar for every dollar you put in. They can "break the buck," because the short term paper they invested your money in may have gone down in market value. You'll get back maybe 98 cents or 96 cents, which isn't like getting wiped out. And people are doing everyting they can, including the government, to prevent that from happening. But it could.


Fairfax, Va.: With the acquisition of Merrill by, what, if anything, happens to the holders of Merrill preferred stock?

Steven Pearlstein: Sounds like you'll be okay, since Bank of America will now assume that obligation to pay the coupon interest.


Fair Lawn, N.J.: So why did the government bail out Bear Stearns but not Lehman?

Steven Pearlstein: The market may not have been ready to absorb a quick demise for Bear. It has had more time to anticipate and prepare for Lehman. That's the big difference. Is any of that provable? NO, we'll never know what would have happened if the government had not stepped in to guarantee JP MOrgan against loss on its purchase of Bear assets. But at some point, you sort of have to trust the judgment of the very good people in government who work on these things.


New York: Why isn't anyone calling for Chris Cox to either resign or be impeached? Not only has all of this happened on his watch, he has exacerbated the problem by elevating management to an equal level with shareholders and worked incessantly to further relax our accounting standards. Contrary the spin, the reason Lehman failed is they lied, baldly and grandly, about the value of their derivatives positions.

Steven Pearlstein: Not sure you can impeach the chairman of the SEC. Not sure Chris Cox bears much blame for what has happened in recent months. But you can question where the SEC was when these investment banks were loading themselves up with debt and performing their basic underwriting functions with so little regard for the investing public. We've yet to hear any acknowledgement from Mr. Cox about his role there, or an apology for having been asleep at the switch. Wonder why?


James, Arlington, Va.: I'm glad the FED didn't step in on this one and the 'Crisis of Morality' is finally starting to sink into peoples minds. If you take big risks, then prepare for possible big failures.

On another note, I know you continue to say most of these big wigs are not criminals, and I somewhat agree, but again, they need to be directly tied to the success or failure of the company.

I mean, big deal, so they lost their jobs, most of these guys were raking in 8 figure salaries which the government can't get back nor the stockholders. One year of their jobs usually can support someone for their whole life. Meanwhile the investors are losing everything, while the top brass (and I mean mid-level and up with compensations) are financially well off. It doesn't matter if they run the companies into the ground, they got their money and it will always be like this unless something drastically changes.

Lastly, do you think we'll see a change in the 'scams' of Wall street, and by scams I mean the made up mathematical formulas they come up with to package and repackage stocks, bonds, loans, etc which caused this mess to begin with. Wall Street hired these 'bright kids' out of the top schools to come up with models to 'confuse' most players. We need less of this BS and more standard business models...not a bunch of scam artists blinding everyone. If you package crap, no matter how much you split it up, it's still crap.

Steven Pearlstein: Lots of good points there. But let me leave you with one word of caution: a lot of the big compensation packages that animate your anger contained lots of stock and stock options. To the degree that investors are wiped out, these big packages didn't turn out to be worth what was estimated when the value was estimated and appeared in the press. In other words, they did suffer. That doesn't mean that they still don't have more money than you did, and more than they did when they arrived at the firm. But its not as bad as you suggest.


Ulp: How strong is Bank of America (or simply, "The Bank") going to be after all of its discount buying? On the one hand, The Bank has always been successful being opportunistic; on the other hand, do these stock dilutions make it less powerful?

Steven Pearlstein: Obviously, there is risk there, but there is no evidence that either JP Morgan or Bank of American didn't make a good bet for the long term in taking over Bear and Lehman, respectively.


Washington, D.C.: Is there a dead cat bounce here? Or, has the floor already collapsed?

Steven Pearlstein: I seriously doubt we've seen the bottom of the stock market.


Washington, D.C.: It finally happened. AIG and Lehman apparently went belly up and the sky didn't fall. Shouldn't this argue that it's best that the Fed get out of the bailourt business?

Steven Pearlstein: AIG has NOT gone belly up. And just because the market has been surprisingly orderly after Lehman's Ch. 11 filing, that's not dispositive on the question of whether bailouts are always unnecessary.


Great Falls, Va.: I wonder if Lehman's creditors (shareholders even? .. probably shouldn't go that far) won't do better through bankruptcy than they would have through the fire sale. The biggest problem facing any financial firm right now is the illiquid market for CDOs. Lehman can take advantage of the automatic stay, bide its time to some extent, and wait for the market to recover. I think it's at least possible that its asset values come out looking much better than they would have in a sale for pennies on the dollar.

Steven Pearlstein: I agree with you that everyone associated with Lehman, other than its employees, will be better off with a Ch. 11 orderly liquidation of its assets or possible sale of the company in whole or in parts. Selling stuff into this market will not get their full value -- there is just too much fear and panic. Ch. 11 is actuallly a way to preserve, reestablish and enhance the value of the firm's assets.


Tampa, Fla.: Lehman gone, Merrill Lynch sold. Who's next, Goldman Sachs or Morgen Stanley?

Steven Pearlstein: Hard to say, but no reason to believe that there needs to be a next among the investment banks.


Vienna, Va.: Re: Asleep at the switch... any chance there will be similar calls for Barney Frank and Chris Dodd, two big supporters of lax regulation of the GSEs?

Steven Pearlstein: Yes, there needs to be some accounting there as well.


Richmond, Va.: So, how does the Fed justify bailing out Fannie and Freddie and all the other banks and brokerages and not Lehman and Merrill? Did Lehman and Merrill think they were going to be rescued? Another miscalculation by these up-standing financial institutions? You mean, there really is such a thing as "enough is enough"?

Steven Pearlstein: Look, this isn't about fairness. Fairness has not much to do with it, despite the fact that it is the only thing people care about on the blogs. This is about doing what is necessary to prevent market meltdowns that lead to economic declines that hurt large number of innocent people who had nothing to do with any of this.


Fort Worth, Texas: A micro question in the middle of the big turmoil: If AIG fails, what happens to the investment accounts that it manages? (As you might guess, my miniscule 403(b)is expensively managed by AIG).

Steven Pearlstein: There may well be some insurance for that, industry insurance.


Silver Spring, Md.: Steve:

Given the shaky condition of financial institutions why would BofA offer a 70 percent premium for Merril stock? Why should BofA stockholders approve this deal?

Steven Pearlstein: Because the stock market was badly undervaluing the company. You shouldn't be surprised by that. Markets over the short and medium run make huge mistakes on value, both on the way up (during bubbles) and on the way down. We know that. The idea that the market at any point "knows" something the rest of us don't is a fiction perpetrated by free-market ideologues.


Floris, Va.: Steve: Yesterday in Outlook, McCain advisor Donald Luskin claimed that the economy was sound because it grew by 3.3 percent in the second quarter. Wasn't that largely because of the stimulus checks and wasn't the average for the three quarters before that about 1.5 percent? Comment: I find these articles by McCain surrogates as disingenuous as their television commercials.

Steven Pearlstein: The article was flawed, in part because the data is flawed. I seriously doubt that the economy grew at a 3.3 percent rate last quarter. And just today the Fed reported that industrial production was down smartly in August, and also that they were revising downward their previous estimates of industrial production in June and July.


Laurel, Md.: Thanks for taking my question. The consolidation of financial institutions over the past 20-25 years seems to have created a situation where the failure of almost any major player (Bear Stearns, now Lehman) threatens the entire econony. Wouldn't everyone be better served if these financial monoliths were dispersed? (Broken up seems such a harsh term.) the risk to everyone would be spread out more. The biggest problem I see now is that people who stood to gain little or nothing by the finaicnal gaints' success may be forced to bear much of the burden of their failure.

Steven Pearlstein: It is a good question, but not one that has an obvious answer, despite the clever way you put it. I have questioned the orthodoxy that bigger is always better, and one reason is that they become too big to manage well. The other side of that is that if the big guys have enough diversity, they can weather the storms better, as Bank of America seems to be proving. That's why its not an easy call.


Washington, D.C.: Thanks for taking this question: Now that Lehman has filed for bankruptcy, what does that mean for folks like me who have 401(k) money in a Neuberger-Berman mutual fund? Do I lose everything? Neuberger Berman's parent company is Lehman. Is it wise to move my money into another fund today? Or is that selling to the bottom? I'm perplexed because the fund is invested in strong companies but Lehman has filed for bankruptcy. Thanks!

Steven Pearlstein: No you don't lose everything. Customer assets are segregated in most instances. So please don't panic.


New York, N.Y.: I just finished reading a great book about the subprime mess, "Chain of Blame" by Paul Muolo. Muolo chronicles how Wall Street led us into the mess we're in. I must say I'm quite a bit miffed at how my personal investments are in the trash can because of the greed at Bear, Lehman, Merrill, Citi, etc. In view of this, do you have reason to think that the events of the last couple of days will create any real changes in how business is done on Wall Street, or will Wall Street forget as soon as this mess has passed?

Steven Pearlstein: I think it will create change. Whether it will substantially change what I consider the amoral and unethical culture on Wall Street in which the interests of the street are always put ahead of the interests of its customers -- that is what I have serious doubts about.


Laurel, Md.: Treasuries dropped a lot today. I have an ARM tied to the 1-yr constant maturity, and it looks like if it was resetting today (it resets in April) my new rate would be 4.10 percent.

Do you expect non-indexed mortgage rates to drop in concert with the current Treasury yields, or will we just see another increase in spread premiums?

Steven Pearlstein: Don't know. Don't every really understand what you just said.


20006: What do you expect the Fed to do, tomorrow?

Steven Pearlstein: Stand pat.


Silver Spring, Md.: Hey Steve... I personally think that americans have had a massive re-calibration of their standard of living a long time coming. So far.. it's happened to retirees whose invesements have plumetted. Homeowners who overbought on silly mortgages. And the 6% (or whatever the number is) who are currently unemployed. Whose next? For those of us who are lucky enough to still be working and not own a house on a silly mortgage, when's our re-calibration coming? I assume it's yet to come, because everything effects everything else. I'm guessing in the form of a few years of high inflation and stagnant wages? Do you agree?

Steven Pearlstein: First, it would not be surprising if the burden of the adjustment is not evenly spread and some people never feel it (although having the market value of your house decline, your 401 k and the value of your currency decline are pretty widespread phenomena).


Washington, D.C.: What are the vulnerabilities of money market funds in the failure of Lehman Brothers?

Steven Pearlstein: Probably not a big deal, as I understand it.


Great Falls, Va.: To what extent did the repeal of Glass-Steagall get us to this point? I've seen some suggestion that the breaking down of barriers between banks, investment banks and insurance are to blame for the tangled web of credit default swaps. (And certainly it must have played a role in allowing AIG to get in over its head in financial products.) But by the same token, Bank of America is one of the only big banks still operating with some degree of choice and will arguably walk away a winner from this episode because of its ability to purchase Merrill and Countrywide. Why has BofA been able to make such acquisitions? Customer deposits, which give a base of capital that the pure investment banks never had access to.

Steven Pearlstein: Let me answer your question this way: Lehman Brothers, was among the last of the free-standing investment banks that did not have an affiliation with a regulated depository instituttion. Bear Stearns was another. And they are the ones that have failed.


Ipswich, Mass.: Hello,

Do you think the U.S. financial markets will regain some normalcy and stability in the short term? To maintain this, will the way the market is run need to be fundamentally reorganized? If so, who does the reorganizing, and do you think this paradigm exists yet?

Thank you.

Steven Pearlstein: No. Yes. Governments and market together. No.


Austin, Texas: What does Bank of America get from acquiring Merrill Lynch?

Steven Pearlstein: A great franchise that will generate lots of cash over the long run.


Washington, D.C.: How has Goldman-Sachs managed to remain unscathed so far? Have they just been lucky, or are they fundamentally better managed?

Steven Pearlstein: Wait till the end of the week, after their third quarter earnings announcement, and ask that question again. But, yes, as a general matter, Goldman has been more artfully managed.


Rick, Washington D.C.: I find it just unbelievable Paulson, Bernake, and others believed that we were 'near the bottom' of the credit problems. We have barely scraped the surface of this debacle. We have a long way to go.

And those that keep saying that when the housing market bottoms out, well be better off, are just as deluded. If the U.S. doesn't start 'producing' something other then houses, we're in for a long recession.

Steven Pearlstein: While I don't agree with the sentiment that we don't produce anything but houses, we did divert way too much resources to that activity. And yes, we have a ways to go.


Seattle, Wash.: If Lehman was the first to fail, would the Feds have still bailed out Bear Stearns and let Lehman fail or would Lehman have been the one rescued? Or would none have been rescued?

Is there really any fundamental differences between the two companies and their place in Wall Street?

Steven Pearlstein: There are differences, and lehman was probably in a stronger financial position, but for the purposes of your question, there wasn't much of a difference. It was simply a timing thing.


Real World, Earth: Hey,

Nouriel Roubini thinks the broker/dealer model is caput and that Goldman will fail, and Merrill would've failed if they didn't find a buyer.

So who's big enough to digest Goldman Sachs? BoA is choking down Countrywide and now Merrill, maybe Wells Fargo (if their HELOC exposure doesn't get them first)?

Steven Pearlstein: I love Nouriel but I'm not sure its true that Goldman is a gonner. I do question, however, the Goldman model, which is part investment bank and part hedge fund trading largely for its own account. There are built in conflictsd of interst there that need to be resolved.


Chicago, Ill.: I am sort of surprised that you are reporting that there is no bailout. I thought that Federal Government has loosened standards on Emergenecy loans. "Loosened Standards" seems to an outsider just another was of bailing out future banks (WAMU and others) through the backdoor.

Steven Pearlstein: They did and, in other times, we would have called that a bailout. The term is not a precise one.


Washington, D.C.: What's your take on short sellers, and in particular the role if any they played in bringing down Bear Stearns and Lehman. Seems to me that all of the blame being heaped on them is yet another attempt to pass the buck - the same way the evil commodities speculators were supposedly driving up oil prices (something the CFTC itself has refuted). It looks like the short sellers were absolutely right when they said that these companies were not being honest about the amount of toxic debt sitting on their balance sheets.

Steven Pearlstein: Short sellers played a role, perhaps an important role, in driving down the stock prices. But we don't know that they were right because we don't know yet if these companies were really insolvent. Just because a panicky market may be discounting the value of asset-backed securities and loans, it doesn't mean that those assets will turn out to be a worthless if they were to be held till maturity. In fact, I kind of doubt it. So let's not lionize the shorts please.


Boston, Mass.: Man, you have got to get back on Kudlow and Company and preach to these guys. I've never seen such free market conservative positions fall on their face so quickly. In reference to Lehman a lot of commentators have mentioned that their main problem is accounting. That they have to mark down well performing assets because under current conditions no one wants to buy them. I was wondering what you thought of these mark to market accounting rules and why the regulators haven't considered adjusting them if some of these banks do indeed have solid assets in place.

Steven Pearlstein: I've been suggesting that some forebearance on mark to market would be a good thing in certain conditions. I still believe that. This may be causing us unnecessary problems. That doesn't mean companies should report what the current market prices are -- they should. But having done that, there is no reason why that new value needs to be the value at which these assets are carried on the books.


Washingtonm D.C.: I am impressed that the government has finally set a limit to how much it's going to bail out bad decisions on wall street. these bankers made high-risk decisions hoping for high rewards and they failed. So they absolutely should be paying the price.

How many more large banks will go broke or get gobbled up before this is over?

Steven Pearlstein: A few.


Washington, D.C.: Others have touched on this, but if the new BofA is even more huge then it will surely fall into the "too big to fail" category overnight. Is there any regulatory agency that must scrutinize this deal, or is it a done deal without any clearance needed? To just approve this simply because the Dow is not down 1,000 points today would seem to be almost insane given the market turmoil of the past year.

Steven Pearlstein: It will be extensively scrutinized, but I doubt any regulator at this point would dare to stand in the way. They might have to make some adjustments, however,


Washington, D.C.: I know Wall Street doesn't care about Main Street - but what about the scores of baby boomers who are now ready/almost ready to retire? What does the down market mean for them and will that have a broader economic impact?

Steven Pearlstein: They may not be able to retire as early as they planned, or live as well as they had expected.


Boyertown, Pa.: Is this the beginning of the great unwinding? Clearly there is a lot of unvalued "securities" that banks want to unload on the government for real money. What's the average Joe with a 401(k) supposed to do? I'm in a broad based index fund. I hate to add fuel to the fire by moving things around for no reason.

Steven Pearlstein: We're well into the great unwinding.


Las Vegas, Nev.: Can you speak to what the rank and file and middle management of Lehman, Merrill and AIG are going through right now? How widescale are layoffs expected to be, and what numbers of people are expected to be directly impacted? Are they disproportionately in New York?

Steven Pearlstein: I really don't know the answer to that question. There is the implication that the company is in liquidation, but it may be that somebody wants to buy parts of Lehman and incorporate those parts into its own enterprise. Or run a part as a free-standing business. In which case, it may be fine for some of those employees (putting aside their lost pension assets). Remember, the trustee will do whatever is in the best interest of the creditors, and to me that doesn't mean shutting down everything. Obviously, Neuberger will be sold as a free-standing entituty. But there are other parts of the company as well that have more value as ongoing entituties than in liquidation. The name itself has market value, particularly if it goes with an ongoing operation.


Richmond, Va.: Hi Steven,

This is somewhat unrelated to today's activity, but I ask anyway: Did you laugh out loud at the 3.3 percent 2Q GDP number? The inflation adjustment used was so low, and cannot be reconciled with the government's own inflation figures released for the second quarter.

This GDP figure has been used by Bush, McCain and in Luskin's opinion piece yesterday to say the economy is still solid. This number is so clearly cooked but it seems underreported. Do you believe it?

Steven Pearlstein: I hadn't realized the deflator was the problem. Maybe that explains it.


Steven Pearlstein: Folks, this has been fun but I got to go and figure out what to say for tomorrow's newspaper. No chat tomorrow -- got a funeral to go to.


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