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Billionaire Eli Broad on the Bailout

BusinessWeek  spoke with Broad, who made his fortune in real estate and insurance, largely through holdings in American International Group about the $700 billion Wall Street bailout and where he sees the economy heading. Here is an edited version of the conversation:Leaders in Congress have announced an agreement on a $700 billion financial bailout package. What’s your perspective on the plan?

It is vital. Last Wednesday [Sept. 17], we almost had a total meltdown of the world financial system. People were drawing $150 billion on money-market funds. Corporations of the highest quality couldn’t roll their commercial paper. Everything was frozen. They had to do something.

I think this program is not going to end up costing the taxpayers anything. The reason for that is they are going to buy mortgaged loans at some modest discount. And at the end of the day, if it fell to maturity and they don’t have to sell them in a fire sale, which they don’t have to, they’re going to end up getting the money back with some return. So I think eventually it’s not going to cost the taxpayer anything.

It had to be done. No one likes it, no one wishes it. Look, this is the biggest financial crisis since the ’30s without any question. The consequences of not doing it would have meant far more than just a recession.

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BusinessWeek reporter Lawrence Delevingne spoke with Broad, who made his fortune in real estate and insurance, largely through holdings in American International Group (AIG), about the $700 billion Wall Street bailout and where he sees the economy heading. Here is an edited version of the conversation:

Leaders in Congress have announced an agreement on a $700 billion financial bailout package. What’s your perspective on the plan?

It is vital. Last Wednesday [Sept. 17], we almost had a total meltdown of the world financial system. People were drawing $150 billion on money-market funds. Corporations of the highest quality couldn’t roll their commercial paper. Everything was frozen. They had to do something.

I think this program is not going to end up costing the taxpayers anything. The reason for that is they are going to buy mortgaged loans at some modest discount. And at the end of the day, if it fell to maturity and they don’t have to sell them in a fire sale, which they don’t have to, they’re going to end up getting the money back with some return. So I think eventually it’s not going to cost the taxpayer anything.

It had to be done. No one likes it, no one wishes it. Look, this is the biggest financial crisis since the ’30s without any question. The consequences of not doing it would have meant far more than just a recession.