Interview: Former Fed Economist
>> santander is buying sovereign bancorp. santander is making the minority investment in sovereign that equals about $27 per share. santander will buy the independent community bank and the investment at $27 a share, that deal adding over 3% to 2007 operating earnings for santander. i’m sorry, for sovereign. moving on this afternoon, we have a couple of guests to continue our discussion on the appointment of ben bernanke. he will succeed alan greenspan as chairman of the federal reserve. for more reaction to the news, we head to washington where we’re joined by two bloomberg news contributors, kevin hassett, former fed economist and aide to president bush’s re-election campaign, and gene sperling. let me get your reaction, gene, to the market ‘s perception that mr. bernanke may be more tolerant of faster inflation?
>> he’ll get it both ways on this. on one hand because of some things he’s written, from there is some of that reaction. on the other hand, when he goes to capitol hill, they’ll be more focused on the idea that he’s for inflation targeting and i think some of the intense hearing that senator paul sarbanes and others have promised will be questioning whether he might be indeed too rigid on inflation and not show the flexibility that chairman greenspan has concerning unemployment so he may be getting it a bit both ways this time around.
>> how will he, gene, following that up, initially react?
>> excuse me?
>> how will he initially react? he’s taking the reins, has to establish himself after following the icon of greenspan. what does he do there?
>> well, i think―my guess, if i were him, he hasn’t called me for advice―but i think what he needs to do to really get through confirmation is to focus on his role as a monetary expert to show himself as a serious person who’s open minded. i think what he needs to run away from a little bit is that while this is a person seen as very nonpartisan and truly a monetary policy expert throughout his academic career, he certainly did make very partisan remarks about the bush tax cuts, et cetera, which probably helped him get the job but he’ll have to pay a certain price when he comes to capitol hill, to the senate, for his hearing.
>> do you think he’s up to speed politically, gene?
>> you know, i talked to people about some of the comments they made and they said, no, actually, what a lot of his fans say, is if he seemed a little too political it was simply because he’s not good as being political but he’s much more comfortable being a monetary economist and therefore when he gets to the federal reserve, he’ll be freed of the talking points that come with being the chairman of the council of economic advisers so his advocates are saying, focus on the 20 previous years where he was a nonpartisan, academic, highly respected by all five and don’t focus as much on some of the comments he’s made in the last few months when he was clearly trying to please bush loyalists and may have given the democrats some fodder for intense questioning at the hearings.
>> let’s bring kevin into the discussion. we’re not forgetting about it. what do you foresee mr. bernanke’s biggest challenge to be in the coming months?
>> i think the confirmation will likely go smoothly. i think he about as good a candidate as you could think of for the federal reserve and that people on the left and right acknowledge that. the one thing that’s a little bit creepy about him is that so many people have such a high regard for him you kind of wonder if he’s really from earth. i think going forward, his real challenge will be to show central bank independence and i would guess the way he’ll do that will be to focus on his love of monetary policy and not introduce himself into fiscal policy debates. i would guess that in his hearings he’ll probably say that that’s what his intent is.
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Interview: On Ben Bernanke on the Fed
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the bell.” our top story, a changing of the guard at the fed.
>> i will do everything in my power in collaboration with my fed colleagues to ensure the continued prosperity and stability of the american economy.
>> that is ben bernanke, president bush’s choice to succeed alan greenspan as chairman of the federal reserve. let’s go to michael mckee for more reaction.
>> lori rothman, thank you. we have an exclusive interview with dallas fed president, former dallas fed president, robert mcteer, chancellor of the texas a&m university system. thank you very much for joining us. you worked with ben bernanke on the fed, have known him for a while. your reaction to his choice to lead the organization?
>> if the chairman has to go, i can’t think of a better choice to replace him. i think it will turn out to be a very wise decision.
>> what skills does he bring to the job? how would you contrast those with what alan greenspan brought
>> ben bernanke has been a monetary economist for a long time, a highly published academic in the area that has now had probably three years or so of practical experience sitting on the fomc meetings so he knows it from the academic side and he knows it from where the rubber meets the road and he has all the skills that are necessary, i think.
>> of course, the fed chairman’s job is not just about monetary policy and economics, but there’s a certain amount of politics involved. does he have those skills, do you think?
>> i have no idea. and of course part of the job is staying out of politics. so if he has a modest opinion of his ability as a politician, that probably will serve him very well.
>> how did it go over with chairman greenspan, with the rest of the members of the open market committee, that he was constantly being asked to comment on issues outside of the fed’s normal purview?
>> i’m not sure i understand your question. but i know that over the course of his long career, he seemed to become more willing to comment on a broader range of issues and congress seemed to use him for sort of a national economic education program every now and then. they felt free to ask about just about everything and he’s a matter at that and―a master at that and i don’t know if ben bernanke can match him on that. probably eventually but he probably will have large shoes to fill in terms of speaking on that broad range of issues. on the other hand, i doubt that people expect him to be alan greenspan right away. he’ll be his own person with his own personality and his own set of skills. and he’ll do the job well. he just will probably do it differently.
>> we’ve talked in the past and many have said the same thing, that one of alan greenspan’s great abilities was his ability to draw people together and get consensus. how hard will it be for a newcomer do it, whether ben bernanke or someone else?
>> i think ben’s prior service on the board of governors will keep him from being a newcomer. everyone there at the board of governors and all the research bank presidents and research directors like him very much and have very high regard for him so he will not have a newcomer problem inside the fed and based on the stock market today, i’d say he won’t have one outside the fed, either.
>> that is a question, how much credibility he brings to the job. when greenspan was first chosen, markets were rather violently reacting one way or the other because they didn’t know enough about him. do you think he comes in, having served on the fed before, with the benefit of the doubt and less volatility going forward?
>> yes, not only having served on the fed before but having been fairly active as a speaker. he has given a lot of important talks over the last few years and i think the markets know himville.
>> one of the things he’s talked about is the idea of inflation targeting. where do you think that goes? do you think the rest of the fed is ready to consider that once alan greenspan has left the board?
>> i think several members of the fomc are ready to consider it. i don’t―i couldn’t give you a head count. i don’t think it was in the cards with alan greenspan there. i don’t know whether it’s in the cards now. but it will be considered and it will―the chances of that have certainly gone up significantly.
>> chairman greenspan has always argued that you didn’t need it because the fed had found other ways to be predictable for the markets . does that goal weigh when chairman greenspan leaves that it would be a help to the markets to have a target?
>> i personally don’t think it would add much. the chairman’s view was that inflation targeting is sort of a marketing tool for a central bank that needs credibility. and i think the federal reserve has earned its credibility. so i don’t think it has a lot to gain by adopting inflation targeting. on the other hand, i think adopting it would constrain it somewhat and reduce its flexibility and options.
>> in terms of credibility, markets will be watching mr. bernanke closely. how would you describe his monetary philosophy? is he a hawk, a dove? where is he on the scale?
>> well, i think he’s―they’re all hawks. they’re just various degrees of hawks and i’m not sure how he fits in but i heard someone describe him as more dovish today than chairman greenspan. i don’t know where that comes from. i think he’s plenty hawkish.
>> so you think he would support the ongoing, at least, idea of continued fed rate increases in to the near future?
>> most likely. he also has his eyes and ears open and he will evaluate each decision as they come. i don’t think he knows right now how far he will go. i hope he doesn’t go too far. i think it’s almost time to stop and put your finger up and see how things are going. but he’s as willing to fight inflation as anybody on the fomc.
>> i have just 30 seconds left. greenspan was the face of the fed. the fact that he’s leaving, good thing, bad thing for monetary policy?
>> he’s been there 18 years and i won’t say it’s a good thing that he’s leaving but he’s served his country well. they have found an excellent successor so i think maybe the time has come. and we’re not there yet. it’s not january 31. not quite yet.
>> thank you very much, robert mcteer, former dallas fed president, now chancellor of the texas a&m university system. back to you, lori.
>> thank you very much. texas instruments is out with its latest earnings after the bell and we’ll check with ellen braitman for the details.
>> topping what analysts had been looking for, 41 cents a share for the third quarter, if you exclude items, a penny better than analysts were looking for. sales also topping estimates, $3.59 billion, analysts looking for $3.55 billion. you do see shares falling in the extended trade. they did rise going into the close today, going into that report, currently down 3.9% and up 26% so far this year. john lau, the analyst who covers the company, said perhaps investors were looking for stronger numbers from the company. we’ll hear more from that analyst in half an hour’s time. the company also giving a profit forecast for the fourth quarter as well as a revenue forecast for the fourth quarter. does anticipate earning between 39 and 43 cents a share. that midpoint, 41 cents a share, matches what analysts are looking for for the fourth quarter. as for sales, it says fourth-quarter sales may rise as high as $3.7 billion. analysts, on average, at $3.6 billion. more details on the third quarter, the company said the chip business was up 10% from the year-ago period, that the third-quarter gross margin was 39.3% and operating margin was 22.7% and that orders were up 24% from that year-ago period. that key in terms of investor reaction in extend trade, those shares down 3.9%. as for the report today, the third-quarter number coming in stronger than expected, for both profit as well as sales, keep in mind it was on september 8 that texas instruments said third-quarter sales and profit would beat earlier forecasts because of a stronger-than-expected demand. those shares up 26% so far this year. in terms of how it stacks up to peers, it makes texas instruments the fifth best performing stock out of the 19 shares in that philly chip index. lori, back to you.
>> thank you very much for that. stay with us. we’ll be right back with the latest on the refco scandal. bloomberg television continues.
