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Moves To Stabilize Markets Examined

MELISSA BLOCK, host:

From NPR News, this is All Things Considered. I'm Melissa Block. Treasury Secretary Henry Paulson did not mince words this afternoon.

Mr. HENRY PAULSON (U.S. Treasury Secretary): Neither passage of this new law nor the implementation of these initiatives will bring an immediate end to current difficulties.

BLOCK: Paulson was speaking about the $700 billion bailout and he said the Treasury Department is moving quickly to prevent an even worst economic crisis. This morning, the Fed announced a half point interest rate cut coordinated with central banks in Canada and Europe. Still, the Dow ended the day down 189 points, the sixth straight day of losses. I'm joined now by Diane Brady, senior editor at Business Week to talk about the markets and what Secretary Paulson or others could do to get the financial crisis under control. Diane, thanks for being with us.

Ms. DIANE BRADY (Senior Editor, Business Week): Nice to be here.

BLOCK: On the sixth straight day of losses, the Dow now down about 15 percent in those six days and credit markets still squeezed. What could slow down these declines?

Ms. BRADY: Well, I think confidence is the big issue at this point more than liquidity. There is money. We've certainly pumped a lot of money into the markets but people just don't know what the bottom is and one of the problems is you keep hearing depression, depression, depression. Stocks went down 89 percent at the bottom of the depression. People don't want to hear that. They just don't know where the bottom is so they're skittish.

BLOCK: And if you're talking about confidence, what would a step be to try to restore confidence for investors?

Ms. BRADY: I think that, you know, Treasury Secretary Paulson - clearly that was his - one of his big messages today was don't panic because we're not. The takeaway I took from what he said was not just reiterating what they're doing but trying to reassure people that they have more flexibility than people might think. They have more tools, they're not just going to go out there and buy up junk that nobody else wants to have. So, clearly the government's trying to give the message that they have confidence but the only thing that's really going to do it is getting the lending going again and right now, that's not happening.

BLOCK: Yeah, and if you look at what happened on the Dow on the stock market when Secretary Paulson was talking, it was after that the market just plummeted.

Ms. BRADY: I know.

BLOCK: So much for trying to restore confidence.

Ms. BRADY: Well, you know, the perception out there right now is - I think the term is helicopter money where you basically are throwing dollars around the landscape in the hopes that people pick it up and start, you know, lending it to each other and spending. That's really not the right approach. A lot of people are telling us, what the government needs to do is really focus in on having some winners and having some losers and really focus on the banking system. You saw what Britain did yesterday which was basically put some money into the banking system partly nationalize it to get lending going again. There's a feeling that really that has to be one of the movements in the U.S. too.

BLOCK: And do you think that's realistic? I mean, when you talk about, you know, the Swedish model, you know, of nationalizing the bank - that's not something we're used to hearing in this country. Do you think that's a realistic possibility.

Ms. BRADY: Well, look what happened with AIG in return for getting 85 billion, essentially the government took a massive stake. I think it's just simply a question of getting the capital. You've got banks that are so wounded at this point that they're just not willing to lend. Interest rate cuts won't do it. They just don't have the confidence and who has the knowledge of risk? It's the banking system. So I think there's a feeling that you really have to focus in on that. Give the banks some fresh equity and allow them to go out and lend again and get the wheels moving.

BLOCK: Anything else in this proverbial tool kit that the treasury secretary has at his disposal?

Ms. BRADY: I think that obviously there's a sense people have of panic. You see so many different moves. Day after day it's unprecedented. Even the rate cut the fact that it was coordinated. They're trying to project an image of calm but the reality is these aren't calm times and everybody in the market knows it.

BLOCK: And on Friday we have the meeting here in Washington of G7 leaders. What are you going to be looking for to come out of that meeting, Diana?

Ms. BRADY: Well, clearly I think people are looking for probably another rate cut. There's a real sense that it could go down to one percent. One of the dangers there is the currency, there's a real fear right now that the U.S. currency is going to be devalued and while that's perhaps good for exports, it's not so good for attracting foreign investors and we need them.

BLOCK: Diane Brady thanks very much.

Ms. BRADY: Thank you.

BLOCK: Diane Brady is senior editor at Business Week. Transcript provided by NPR, Copyright NPR.

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