The nations largest banks are bigger and arguably stronger than they were five years ago in the financial crisis. But are they safer . And could taxpayers still be on the hook if one of them slips and fails . All that and more tonight on nightly Business Report for wednesday, september 18th. Good evening, everyone. A recordbreaking day on wall street. An exciting day all around. Im tyler mathisen. Im sue herrera in tonight for susie gar ab. The Federal Reserve said it was no time to taper its bondbuying stimulus plans not until more signs of economic progress. That lifted the dow to new alltime highs, sent oil and gold prices soaring and push bond yields and the u. S. Dollar sharply lower. Take a look at this intraday move and how the dow did a huge uturn at exactly 2 00 p. M. Eastern time when the fed announcement came out. At the end of a wild day, the dow closed 147 points higher, closing at a new record of 15,677. The nasdaq shot up 38 points and the s p surged 20 points, also ending at a new record close. Now Steve Liesman has more on the feds surprise announcement. Whats next for the central bank and what it wants to see in the economy. Ben bernanke and the federal Market Committee surprised markets in a big way today by not reducing the stimulus its putting into the economy, maintaining its asset purchases at 85 billion, despite Market Expectations that it would begin reducing it today. The Federal Reserve chairman in his press conference offered three reasons. First, the fed doesnt have confidence in the improvement in the economy that it will last. Second, that financial conditions, the rise in interest rates, could hamper growth in the future. Finally, fiscal restraint. The idea that there could be a big debt ceiling debate, there could be a potential Government Shutdown, spooked the fed into thinking now is not the time to reduce the stimulus to the economy. But it was clear in the press conference that the fed chairman was very, very concerned about the rise in interest rates. The other factor, which was at play was an unwinding of excessively risky and leverage positions in the markets. And insufficiencies of liquidity in some cases meant those unwindings led to larger reactions in prices and rates than might otherwise have occurred. All of this begs the question for investors and the nation about when the conditions will be right for the Federal Reserve to taper. It could be after the debt ceiling debate and the Government Shutdown is potentially avoided. But heres what he said when asked when he might indeed reduce the stimulus. If the data confirm our basic outlook, if we gain more confidence in that outlook and believe that the threepart test that i mentioned is, indeed, coming to pass, then we could move later this year. We could begin later this year. Finally, i asked the fed chairman about his plans, whether or not he quit or was he fired, and would he serve. And he said he would not answer that question, but he did suggest that we might get some information on his future plans soon. For nightly Business Report, im Steve Liesman. An allstar panel now to discuss why the fed did what it did today, or more appropriately, didnt do, and what it all means for your money. With us is Randy Kroszner, former fed governor, professor at the university of chicagos booth school of business. Bill gross, co ceo of pimco and owner of pimco total return. Fill disclosure, i am a shareholder. And barry knapp, head of u. S. Equity portfolio strategy at barcla barclays. Welcome to all of you. Bill, let me begin with you. Threeheaded question here. Did the fed surprise you today, did the fed do the right thing, and are you and your shareholders happy this evening . Last question first, very, very happy, tyler. You should be happy. Did it give us a surprise . Yes. The fed gave us not only no taper, but i think importantly, very dovish modifications of the unemployment rate, which might mark the beginning of policy rate hikes at some point perhaps as far out as 2016. Not only did bernanke dismiss the 7 target that he was using, you know, for taper, almost like a magic slate, but the 6. 5 level, which he had referred to before, you know, you suggested that that didnt apply either, and that it might have to be considerably lower to precipitate higher interest rates. So this was a positive day for bonds, a positive day for higher prices. And lower yields. Randy, how did almost everybody get it wrong on wall street . I mean, we had so many people on tv all over the country, on various different networks, talking about the fact that the fed was going to taper and that it was kind of baked into the market. How did they get it all wrong . I think they didnt take the chairmans word seriously that he really is driven by the data. And he doesnt get boxed in by just starting to talk about the possibility of the stepdown. You have to remember, the economy looked stronger back in may june when they were talking about this over the last three months. The employment growth has not been as strong. Although the employment rate has come down, its come down for the wrong reasons, because less labor force participation. And so he really is driven by driven by the data. And in particular, exactly as bill said, i think the market surprised the fed a little bit in how much they moved rates up in response to just the talk of about the possibility of doing this. And so the fed kind of responded by saying, well, we didnt think that the impact should be that much on the markets. And were concerned about that much of an impact on particularly housing. So were going to wait and see. You know, barry, let me turn to you. I heard bill gross earlier today describe today as a riskon kind of day and presumably moving forward, at least for as far as the next fed meeting goes. Is it a riskon day for you in the world of equities, barry, and if it is, how can it be if, as Randy Kroszner just said, the data on the economy are worrisome to the fed . So i i think im going give you an answer thats a little bit counterintuitive in the sense that we dont necessarily think in some ways, its riskon in terms of carry trades, anything related to fixed income. Our highest conviction trade at the beginning of this year, when the narrative was qe forever, was buying stocks with bondlike characteristics. The idea that spreads would tighten across a range of fixedincome products, ultimately would push investors into parts of the stock market most closely correlated to the bond market. That trade really reached its peak of outperformance at the end of the first quarter. And then it started to shift to cyclicals in the Second Quarter as the Economic Outlook improved. The socalled equity risk premium started to contract there, telling you that the Growth Outlook was improving. Now, what happened today was, we had utilities rally almost 3 . Theres a real question, and first of all, we dont think this takes us to october. Probably takes us to december. Where everyone will just pile into parts of the stock market that dont really drive growth, that dont really drive employment or capital development. Its a wealth effect dynamic, but it really is not a Macro Economic positive. It will just be people buying what generally are somewhat unproductive assets, buying stocks with high dividend yields. Yeah, bill, let me turn you to one of the reasons the fed cited for not pulling back on its stimulus and that was the looming impasses in washington. The debt ceiling debate, the budget impasse we seem to be having, the increasingly vitriolic conversations going on between either side of the aisle and the white house. What kind of volatility are you anticipating as we get closer to those deadlines, might be inherent in the stock market and the bond market . Well, we expect volatility. We expect headlines one way or the other. But we expect resolution. We have seen this before, and pimco expects at some point in october for there to be a resolution in terms of the debt ceiling. Theres no doubt that bernanke is concerned about it in terms of fiscal policy spoken to that. 6, 12, 18 months ago, for a long time. In addition, let me add that the fed focused today on inflation. Inflation target the pce, the core pce is really only moving up at 1. 2 . Theyve got a target of 2 so the fed really wants to raise that inflation rate. They want to reinflate the economy and so any asset such as tips dominated by inflation should do very well. Randy, very quickly, whats wrong with this economy if the fed is concerned about it, and would you have voted the way all but one of the voting members today voted, and that is no taper . The economy has been in what ive been calling for the last yearandahalf a sideways slide. We have some job growth but not really strong job growth. We have some investment but not a lot of investment. And so we just arent getting the push forward. I think with this stepdown in data i probably would have gone along with the consensus and said its okay to wait and see, because as bill just said, we dont see inflation on the horizon. Randy, bill, barry, thank you very much for being with us, and clearing it all up for us tonight. And still ahead on this record market day, a lot of stocks made big moves and well tell you all about them. But first, how the International Markets closed today. The stock rising 5 to 116. 25. Price line hitting a milestone. That stock touching 1,000 for the first time ever. It now has the same market cap as general motors. And its market value is now greater than 80 of the stocks in the s p. The stock closed at 995. 09 a share, up 2. 5 . Ty . And sue, adobes profit slampg in the Third Quarter but investors focused on the Cloud Computing business, propelling the stock to a new 52week high. Shares up 9 to close at 52. 58, making it the best performer in the s p 500 today. It was a record year for man chester united in terms of revenue. The reigning pro soccer champs saw a double digit gain in commercial revenues driven by sponsorship deals as well as merchandising and product licensing, and the company, the most valuable sports franchise in the world, is projecting another strong year, assuming the Team Finishes at least third in the english premier league. Shares up 2 today to close at 17. 47. And hold the gravy. Cracker barrel blaming higher commodity costs for its drop in Quarterly Earnings and things dont look to be turning around any time soon. The Restaurant Operator forecasting current profit below estimates, the stock down 2 to 104. 73. President obama spoke to some corporate execs at a meeting of the Business Roundtable today, urging them to implore members of congress to raise the nations debt limit without any conditions, so that the government can pay its bills. A president or a governing party and trying to force issues that have nothing to do with the budget and have nothing to do with the debt. The president also reiterated to the group his vow not to negotiate with republicans over raising the debt ceiling. But despite that, members of the house gop say they will tie up a routine bill to fund the federal government by attaching a clause that would end funding for the Affordable Care act. The president s Signature Health care law. Republican leaders also said they will move very quickly to raise the nations borrowing limit, but only by attaching a wish list of gop priorities, like overhauling the Corporate Tax code and forcing construction of the key stone pipeline. While the white house battles to raise that debt limit and reach a budget deal, it is also proposing for the october 1st opening of state and federal Health Care Exchanges, part of the Affordable Care act. To reassure americans concerned about privacy issues and the security of information they give when they sign up, the administration is setting up a toll free number for clients to report fraud or attempted Identity Theft under the new law. And with those state and federally run Health Care Exchanges set to open in less than two weeks, officials are gearing up for a flood of applicants. So many are now turning to privatesector health care brokers to help people navigate the new public marketplaces. Bertha coombs has more. People are going to flood our gates. Rebecca pierce is confident marylands Insurance Exchange will be ready for the start of obamacare open enrollment october 1st. She is rallying her staff to focus beyond the openingday flurry of attention. Theyre going to want to know how they can possibly get coverage. But they may not buy right away. So i expect another spike in early december. When people are actually coming back in and purchasing. Maryland, one of 16 states in the districts of columbia, which has built its own exchange, hopes to enroll 250,000 of its estimated 800,000 uninsured residents through its online marketplace in 2014. What is Maryland Health connection . To get those kinds of numbers, a big part of their outreach will involve traditional insurance agents. We were looking to supplement the market and not replace the market. We understand that there are people within the within the state who have done this for an awfully long time, and we were relying on the expertise of brokers. In new jersey, one of 34 states that opted for a federallybuilt exchange, brokers have been told theyll play a big role too. They have the experience in the insurance market, enrollment issues. And they are key to using those avenues to help people. But for brokers like frank, its frustrating still being in the dark. Federal Health Officials wont be posting insurance plans on their sites much before october 1st. Only thing we can do is be prepared for the unknown. And were doing our best to prepare ourselves and educate our consumers and clients as to what path they need to take, with respect to health care reform. Brokers get paid through commissions from insurers. But as with other Online Marketplaces like Discount Travel sites, analysts say the exchanges may squeeze brokers out, longterm. This is very lowcost insurance and what that means they want to engage with brokers, but dont want to pay the full commission. But rebecca pierce says buying insurance isnt like shopping online. This isnt just buying a pair of shoes online. This is important decision. Whats more, for the obamacarobama administration and insurers, large numbers are needed for it to work economically. And this year, brokers could help tilt the balance. Im Bertha Coombs for nightly Business Report. And the government said late today that growth in the National Spending of health care will accelerate to 6 next year from about 4 this year. And for more on this story, head to our website, nbr. Com. And also today, walgreens became the latest big employer to end a companysponsored Health Insurance program. Instead the nations largest drugstore chain will pay a stipend to 120,000 current workers, and have them look for another plan through a private health Insurance Exchange. Where they can choose from as many as 25 different plans. The idea is to regain control of health care outlays and avoid annual premium increases. So joining us now to talk more about Big Companies making changes to their companysponsored insurance plans for their active workers, its helen darling, president at the National Business group on health. Welcome, helen. Nice to have you here. Thank you very much. I would assume as a Large Company like walgreens makes a move like this, a number of other companies are going to be watching very carefully and probably will decide to do the same. Well, certainly a lot of employers are looking at private exchanges now. In fact, in a recent survey we just released, we found that 30 of employers were thinking about that possibility in 2015. Not this upcoming year, but the year after. But we do have some number who will be doing the same thing in 2014. Helen, this feels to me like the switch that took place and is still taking place in many companies, away from what are called defined benefit Pension Plans and towards defined contribution plans, away from Standard Pensions and towards something that puts the investing possibility in the hands of the employee. Have i got that right, and are we at the dawn of an era where companies are going to cease providing packaged plans to employees . I think youre right in that were directionally headed away from employers saying no matter what it costs, were going to cover all of your Health Benefits. To a model in which theyre saying, were going to give you some choices, including some in which there are substantial costsharing and youre going to have to make more choices to what were seeing a little bit with the movement to private exchanges. And for some populations to the public exchanges, the idea that the the individual, the employee, or the retiree or whoever it is, is going to have some contribution, but he or she will have to decide how rich a plan they want, what details they want to include and how much are they willing to pay of their own money. You know, not to be cynical, but there are a lot of people who think that if this is good for the employer, how can it possibly be good for the employee. Can it be good for both . Well, it can. And actually, all these things were talking about now still reflects a commitment that most employers have for providing Good Health Benefits for their employees. Because its important to recruit and retain talent. And so the theyre definitely going to continue most of them to provide these benefits. Especially if theyre in a highly competitive industry, where its very hard to attract and hold talent. That said, as costs have risen, questions have been raised about how much you give to workers in the form of Health Benefits, or cash wages. And some balance. So maybe the cash wages can grow faster, and they may not have the Health Benefits contribution grow as fast as it might have in the past. So a lot of people would prefer to have more money and be able to make more choices. And not be stuck, necessarily, paying for a superrich plan that maybe they dont take advantage of and they dont want to pay for it. Let me ask a question where the answer may, in fact, be obvious. As i understood the Affordable Care act, it basically sets up an employer mandate. In other words, employers that have more 50 employees have to provide some form of health care coverage. Would this kind of stipend qualify under the Affordable Care act for compliance with that part of the law . Well, as long as the employer is facilitating their access to a good plan that meets the qualified Health Plan Requirements and affordability requirements, which are not over the top. There are things like bonds, plans and things like that in the exchange. So there can be a fair amount of costsharing of a plan that, you know its basically kind of a reasonable package. As long as thats whats offered, then they are compliant with the Affordable Care act. Helen, thank you so much. Complicated subject. You made it seem very simple. Thank you. Helen darling, president at the National Business group on health. And coming up, five years since the great recession, the keys to the financial crisis. Have the countrys biggest banks changed . Does more still need to be done . First, though, lets take a look at commodities, treasuries and currencies today. Blackberry unveiled its newest smartphone today, z30, hoping to win back market share from apple and samsung, despite uncertainty about the companys future. This latest top of the line device comes with a larger, fiveinch screen and faster, more powerful processor. Separately, the wall street journal reports the company may cut up to 40 of its work force. Blackberry is exploring options, including selling all or part of its smartphone business. And finally tonight, the latest in our series examining the changes in the economy in the five years since the financial crisis began. Tonight we look at the nations banks and how they survived the down turn. Are they in a better position now than they were before . And if not, what else needs to change . Kayla tausche has the story. Reporter five years ago, wall street brought the Financial System to its knees. Making toxic loans and selling them to others, all borrowing to make it happen. As investors lost confidence, the markets played musical chairs. Ten banks became six, strapped with some 200 billion in government aid, and an avalanche of regulation. I think that the Capital Program we designed and to get out and put capital into hundreds of banks very, very quickly and recapitalize the u. S. Financial system is is a huge success. And that money has come back. Reporter the money took a few years to come back, but changes hit the industry immediately. We have dramatically brought down leverage, increased transparency, reduced our level of risk and made changes to how people are paid. Reporter most of those changes described by mac in a 2009 testimony stuck. Leverage, the amount banks borrowed against assets, thought to be the culprit is cut in half. In july, washington required it to fall even further. Banks have raised credit standards and squeezed consumers, but now they have fewer risky assets compared to before. And the capital backing up those risky assets doubled. Not to mention, theyre saving more cash for a rainy day. 1 for every 10 in assets. A big chunk of cash is also going back to the government in fines. Banks paying nearly 70 billion in crisisrelated lawsuits, a number that is still growing. But shareholders are sitting tight. Bank stocks up 230 since the march 2009 bottom. Many in congress say more has to be done. Senators warren and mccain, brown and vitter, all vying to break up banks once and for all. Wall street, fighting to mend fences in washington and with consumers. One of the lessons we learn now, is theyre inex trickbly wound together. Wall street cant prosper with main street in poor economic health. Reporter a lesson learned. If only in hindsight. For nightly Business Report, im kayla tausche. Thats nightly Business Report for a recordbreaking day on wall street. Thanks for joining us. Same sue herera. And a bit of a surprising day, as well. Absolutely. Not many people thought no taper. Im tyler mathisen. Thanks for joining us. Well see you right back here tomorrow night. Nightly Business Report has been brought to you by sailing through the heart of historic cities and landscapes on a river, you get close to iconic landmarks to, local life, to cultural treasures. Viking river cruises. Exploring the world in comfort. The following kqed production was produced in high definition. Tonight on quest Northern California is a wonderland of magnificent fruit and vegetables, thanks mostly to the hard work of a single critter the honey bee. Find out what scientists are doing to cope with a deadly threat to our most potent pollinators. And with this kind of damage, youd think earthquake, right . Well, it turns out theres a geological threat lurking in the bay areas hills that can be just as dangerous. Are you ready for it . And neptune. Its never the first planet you think of, but would you miss it if it were gone . [ music ]
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