Many Joined in Bid to Calm the Markets

Global financial markets appear to have survived a wild week without collapsing. Amid the chaos, several key people stepped forward to try to avert a crisis.

Copyright © 2008 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

STEVE INSKEEP, host:

It's MORNING EDITION from NPR News. Good morning. I'm Steve Inskeep.

If you are away from the news all week, you might glance at the stock markets now and think nothing happened. Many of the world's stocks and stock exchanges have recovered their massive losses from the start of the week. Yet, there's been a huge drama to get right back where we started. We're going to look more closely at what happened and why in this part of the program. The climax of that drama was Tuesday, ahead of the opening bell on Wall Street. CNBC had live coverage on the floor of the New York Stock Exchange.

Unidentified Woman: A very intense floor. We're getting pushed around. These guys are assigned to do their job. We're in their territories. As the NASDAQ…

INSKEEP: Tuesday's drop was triggered by many things, and we're going to examine that.

NPR's Adam Davidson is our guy this morning. And he's here to introduce the characters in our story.

Adam, who are they?

ADAM DAVIDSON: Good morning, Steve. We're going to simplify this. We're going to bring it down to three main characters. The first one is President Bush. We'll talk about him in a minute. The second is Ben Bernanke, the chairman of the Federal Reserve, the U.S.'s central bank. He's the guy who controls the money that flows through our economy. And the third character is the investor.

Now, of course, there are millions of investors all over the world. They have different goals, different attitudes, different perceptions. But we're going to kind of boil it down to what the investor was thinking and when our story starts last week, they - investor was a very anxious person.

INSKEEP: Now, you said, last week. Of course, we're not going to begin this drama on that climactic moment on Tuesday morning. We're going to find out what led up to it. I'm sure we can go back months or years if we needed to. But let's go back to Thursday, 8:30 in the morning. This is last Thursday, a week ago yesterday. What happened?

DAVIDSON: A lot had happened up until that point. For the previous months, we had been hearing more and more talk about a possible recession or severe economic slowdown in the U.S., maybe around the world. This was spurred by a crisis in housing. And at 8:30 in the morning, a week ago yesterday, last Thursday, there were housing numbers coming out and everybody in the investor community was watching those housing numbers.

INSKEEP: And what did they see?

DAVIDSON: They saw that home construction for December had fallen 14 percent. That is a huge one-day drop; the biggest drop in 16 years; they were terrified by that number. And then, immediately after 8:30, all eyes were on Fed Chairman Ben Bernanke. He was heading the Capitol Hill and he's the guy who might solve the crisis.

Mr. BEN BERNANKE (Chairman of the Board of Governors, United States Federal Reserve): In the months ahead, we will be closely monitoring the inflation situation, particularly inflation expectations.

INSKEEP: Inflation?

DAVIDSON: Exactly. This is not what investors wanted to hear. Bernanke is talking about inflation, meaning he's cautious, meaning he's not going to pump money into the system. You're just talking about that phrase. He's going to be worried, and investors want money out there. He wants Bernanke - they want Bernanke to take aggressive, quick action. And so, they - this testimony of Bernanke made them even more nervous.

INSKEEP: And then it comes to be Friday morning, and President Bush decides to speak up.

President GEORGE W. BUSH: To keep our economy growing and creating jobs, Congress and the administration need to work to enact an economic growth package as soon as possible. As Congress considers such a plan, there are certain principles that must guide its deliberations.

INSKEEP: Adam Davidson?

DAVIDSON: President Bush goes on to explain that what he'd like to - that he wants to see a big stimulus package. But here's the thing. He doesn't explain exactly what's going to be in the stimulus package.

Right away, Democrats come up with their counter plans, how they're going to stimulate the economy. And suddenly, our investor is thinking, oh, this is going to be a political thing. It's a presidential season: Democrats and Republicans accusing each other of not taking care of the economy properly. This is going to take time and this economic stimulus package is going to get bogged down in White House, in congressional politics. And we're not going to get the relief we need.

INSKEEP: And Friday, as I recall, a week ago today, was a lousy day on Wall Street and the markets closed for the weekend. What happened next?

DAVIDSON: Okay. So going into Monday morning in Tokyo, in Hong Kong, in Shanghai, investors are feeling anxious. Ben Bernanke has offered them no relief. President Bush, Congress have offered them no relief. They are feeling just as anxious as U.S. investors. And they wake up and see no reason for hope. And so, they start selling stocks. And then they start seeing everyone else selling stocks. So they start - it's a feedback loop. They're selling and selling and selling.

Here is some coverage from NPR for that morning.

Unidentified Man: Stock markets all across Asia dropped sharply today as investors are worried about this recession in the United States.

NPR's Anthony Kuhn reports from Beijing.

ANTHONY KUHN: In Mumbai, India, the Sensex index plummeted 7.4 percent, its second biggest drop ever in percentage terms.

INSKEEP: So we move from time zone to time zone. Asian markets dropped, then it comes to be Europe's turn. European markets dropped. But it's Monday, and American markets were closed. What was happening on that seemingly quiet day on Wall Street?

DAVIDSON: Traders could not trade the actual stocks, but they could trade futures. These are sort of bets on how the stocks will do in the near term. And they are trading way down. They are making it very clear that when the stock market opens Tuesday morning, the prices are going to fall just as dramatically, if not more so in the U.S. as in Asia and Europe.

And so on this holiday Monday, we're told that Ben Bernanke had a planned trip to go to New York. He cancels his trip. He runs to the office. He calls all the people on the open market committee. These are the guys who have to agree on any major action by the Fed. This is highly unusual. The Fed usually works in slow, deliberative ways. And the Fed is never supposed to respond to these short-term market fluctuations. But the market is tanking; Bernanke is worried. He's getting these guys on the phone in an emergency phone call.

INSKEEP: And doing something that normally they'd never do.

DAVIDSON: Exactly. It's safe to say that everybody in power in Washington and the White House and the Fed and Congress is looking at those collapsing stock prices in Europe, in Asia, knowing they're going to come to the U.S. the next day. They don't know what this is. Is this as bad as September 11th? Is it even worse - stock market, I should say, on September 11th, which collapsed dramatically right after.

So now, we know now that there was this major sell off from one bank in France, Societe Generale, because of the work of a rouge trader, which added a lot of selling to the market - something like 40 or 50 billion euros worth of stocks. They didn't know that at the time. All they saw were markets plummeting. And normally, again, they would take weeks to make this decision.

Let me give you a sense of how things felt that morning. I talked that day to Peter Federholts(ph), who's a day trader with Avatar Trading in New York.

What were you thinking when you woke up this morning?

Mr. PETER FEDERHOLTS (Day Trader, Avatar Trading): I thought it was going to be a pretty volatile day based on what happened overseas.

DAVIDSON: I mean, were you feeling afraid?

Mr. FEDERHOLTS: Not really afraid. I've been doing this a long time. But you're a little nervous on days like today because it's a kind of day when you can get yourself in trouble if you're not careful.

INSKEEP: No kidding, stocks dropped hundreds of points in the early minutes there.

DAVIDSON: Right. And the anxious investors wanted some kind of rate cut. They thought it would come next week. Out of the blue, Ben Bernanke comes with this three-quarter percent rate cut. This is huge. And it's huge that he did it in between meetings, not on a regularly scheduled meeting. And it showed the investors, Ben Bernanke is no longer talking about inflation, he's no longer taking this cautious mode. He is worried. He's just like them. And they like hearing that.

INSKEEP: Well now, Adam Davidson, let me just ask one final question to wrap this up. Because the markets have now recovered; things have come back. Are the fundamentals of the economy any different than the fundamentals that were worrying investors at the beginning of the week?

DAVIDSON: There are some really good signs for investors. Ben Bernanke is on their team. President Bush and the Democrats have reached - it seems have reached an agreement. Those are all good signs. But the main drumbeat, the bass note of this economy is negative. This is an economy clearly heading for a slowdown, maybe a recession. And there really isn't that much that the president or Bernanke or the investor can do about it.

INSKEEP: Adam, thanks very much.

DAVIDSON: Thank you.

INSKEEP: That's NPR's Adam Davidson taking us through a number of days when it seemed that everything changed, and then perhaps in the end not very much. And he'll continue to watch for later developments for us.

Copyright © 2008 NPR. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to NPR. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.