Manufacturers say it's time to rein in Wall Street
Manufacturers don't always understand Wall Street's game, but after still-unexplained events nearly wiped out a trillion dollars in market value, they say it's high time for more regulation of financial services.
The U.S. economy has become far too dependent on financial wizardry, a shakier foundation than the nuts and bolts of building excavators and jet engines, executives said this week at the Reuters Manufacturing and Transportation Summit in Chicago.
The scary part about what happened in the market last week is that no one seems to know why, said William Zollars, chief executive of YRC Worldwide Inc, the largest U.S. trucking company. That is frightening, because that means it could probably happen again.
Last Thursday's dramatic sell-off -- which briefly pounded the Dow Jones industrial average .DJI down almost 1,000 points, the biggest one-day intraday drop in its 114-year history -- is a clear sign that lawmakers need to get a tighter grip on the market's workings, executives said.
Officials from the U.S. Securities and Exchange Commission and six major U.S. exchanges agreed this week that new safeguards were needed to prevent a repeat of the incident, in which effects were magnified immeasurably by computerized orders that chased the major averages down at lighting speed.
It's hard to argue against financial regulatory reform in light of that incident, Zollars said.
ENGINEERS VS. MBAS
While most major U.S. industrials are dependent on Wall Street as the surest conduit to the billions of dollars in investment they need to finance factories, executives voiced little faith in the Wall Street minds that created the obscure financial instruments that fueled the housing bubble and subsequent brutal economic downturn.
There are all those kinds of gimmickry kind of investment practices, as you know, that goes on today, said Daniel Ustian, chief executive of Navistar International Corp, which makes heavy trucks. The ones that had the gimmickry, they either got killed or they made a lot of money.
Engineering and manufacturing skill has become undervalued
in a nation captivated by the promise of easy riches that investment banking until recently promised, he said.
I know what it takes to run a successful, complex company that makes something that people buy versus some other companies that are doing trading, Ustian said. I don't know what the skill level of that is, obviously there's some technical skill, but I'll match them up to any of our engineers any day.
NEED FOR CLARITY
Heavy industry in the United States faces a raft of regulation covering everything from how factories prepare for fires to how long truck drivers can be at the wheel. In part, that's because decades of practical experience has made it very clear to lawmakers what risks assembly-line workers face and the public danger poorly used or maintained heavy equipment can pose.
But the speed with which Wall Street turns out new financial instruments may have surpassed regulators' ability to keep up, executives said.
I don't think the financial world is as well understood as perhaps it could or should be, said Ron DeFeo, CEO of Terex Corp. There are a number of aspects of the financial markets that could use greater transparency.
Even manufacturers that operate their own finance businesses -- like Caterpillar Inc -- think some reform is needed.
There's a huge consensus in the country and even in the business community that we need financial regulatory reform. It was certainly inadequate in the last very difficult period we've gone through, CEO Jim Owens said. I think we need serious regulatory reform.
Several executives said days of market turmoil also made them feel all the happier to work in an industry that relies on hard assets and well-trained workers, where value cannot evaporate quite so quickly.
When I came out of business school 26 years ago, I made a very important career decision that I wanted to work for an industrial company and I haven't regretted than one time in the last 26 years, said Jim Griffith, CEO of bearings maker Timken Co . Not in 2008 when we were at record levels of demand or in 2009 when we were at the bottom of the economy.
In the week that followed the dramatic plunge in share prices, U.S. stocks have recovered most of their earlier losses. After the wild market swings of the past two years, executives said they have learned to take wild share fluctuations in stride.
Martin Richenhagen, CEO of Agco Corp who owns shares in both his own company and rival Deere & Co, said he does not read too much into single-day market moves.
I was surprised, the German executive allowed. Was I scared? Not really. Because you also learn that there is a certain disconnect between your stock price and the company's performance.