Wall Street Posts Biggest Gain in Six Years

The Dow Jones industrial average on Wednesday jumped more than 400 points, the biggest gain in six years. Newsweek's Daniel Gross makes a bid for your attention.

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ALISON STEWART, host:

OK, Rachel. Have you ever had a case of MEGO, "My Eyes Glaze Over"?

RACHEL MARTIN, host:

Often times.

STEWART: Yeah. I had a bad, bad case of MEGO when I read about the DOW Jones industrial average jumping more than 400 points, the biggest boost in six years. It was the result of this Federal Reserve giving the nation's banks a 200 billion dollar shot in the arm. Now that should make me excited. Mm, glazed on over. Oh, will someone make me care?

(Soundbite of music)

STEWART: Yes, it is the Bryant Park Project's occasional series where we explain news that has to mean something to someone somewhere, just not us.

(Soundbite of laughter)

STEWART: We won't know why. Here to play is a previous contestant from Newsweek Magazine, Daniel Gross, who is also the Moneybox columnist for slate.com. Hi, Daniel.

Mr. DANIEL GROSS (Senior Editor, Newsweek; "Moneybox" Columnist, slate.com): Leggo (ph) my MEGO.

(Soundbite of laughter)

STEWART: All right, Daniel. Let's set this up just a little bit more before we dive into you making us care. The DOW Jones Industrial Average, the oldest stock market indicator, 30 actively traded blue chip stocks, we know that. So it spikes on Tuesday, 400 points up. Why should that get such a big headline? Is 400 some magic number?

Mr. GROSS: Well, the news flow has been overwhelmingly negative relating to markets, you know, for the past several months, down 100 points, down another 100 points, down another 100 points. You know, Wall Street guys are so depressed that they are ratcheting down the level of the prostitutes they're calling from two diamonds to, you know, a cubic zirconium.

(Soundbite of laughter)

STEWART: I got you. The Federal Reserve said it'll offer up 200 billion dollars worth of Treasury securities to banks and brokerage firms. I'm just going to ask the question which I know other people are maybe a little embarrassed to ask. Can you explain the Treasury securities to me?

Mr. GROSS: Yeah. basically, all these banks have all these mortgage bonds, stuff they're holding on their balance sheet whose value is declining, and that makes them really reluctant to lend money to individuals, to businesses, to buy debt that's issued by other people. Federal Reserve came and said, OK, take all those bonds that you have sitting on your balance sheet. Give them to us and we'll give you Treasury bonds, which are the most secure, safest investment in the world.

Not on a one-to-one basis, but maybe 85, 90-cent to a dollar basis. And that gets that stuff off of your balance sheet temporarily, replaces it with stuff that is of the highest, highest quality in the world. And you know, insert your own joke about U.S. government debt being the highest quality in the world here.

(Soundbite of laughter)

And that should give confidence to the bankers, to the investors in these banks, to allow them - their stocks to stop falling and to allow them to start lending again. You know, the word "credit" comes from the Latin, meaning "belief" or "I believe." And the crisis that we're seeing that is making mortgages harder to get, that's making credit card rates go up, that's creating all these problems, is all about confidence. And this was a measure intended to increase confidence in the banks.

STEWART: OK, so we're talking about confidence. We're talking about people lowering the bar for their expectations, things that make them get excited. With that information in mind, dear listeners, we're going to put 60 cents - 60 seconds on the BPP clock. Daniel, you're a returning champion. You made us care before. So you have one minute. When you hear the ticking sounds you only have ten seconds left. So when it comes to the DOW going up 400 points and the Fed Reserve offering 200 billion dollars worth of Treasury securities, Make Me Care. Go!

Mr. GROSS: The biggest thing that's impacting the economy right now is the crisis surrounding the financial system. If you live in New York, this entire economy revolves around Wall Street. If you live in this country, 20 percent of this economy is financial services. That part of the economy is utterly broken and in a recession, bordering on a depression with lots of job loss. What this move did was restore some much-needed confidence in the banks. It gave people a sense that A, maybe these banks won't fail. B, maybe they'll start lending again, and that will free up capital, enable people to start buying homes a little more easily, allow companies that may be in trouble to refinance some of their debt, and allow consumers, perhaps...

(Soundbite of clock ticking)

Mr. GROSS: To gain access to lower interest rates. Which of course, should cause them to go to malls and buy junk that's made in China again. All those things are really vital to the economy at large, but in ways large and small, are vital to all our lives as American consumers and American workers.

STEWART: All right. So basically, you want people to go out and stimulate the economy and buy things and then feel better about buying homes. But it seems like this was sort of a little brief party that they had on Wall Street. I'm looking at some of the information this morning. The dollar fell below the yen for the first time since '95. So was this a good move by the Fed? Or was it just a brief moment of happiness on Wall Street?

Mr. GROSS: It's possible that both those are true.

STEWART: Really?

Mr. GROSS: We've seen every time the Fed has cut rates or taken a move like this - it's done a series of these moves in the past six months to instill confidence. The markets respond because the markets know, instinctively, that when the Fed does something like this, it's good for stocks. It's good for the financial system. By the same token, this sort of underlying meta-narrative behind all this is the continuing problems of the economy slowing, of people having difficulty paying debt, and of the housing market performing poorly. None of that has been fundamentally changed by this single act by the Fed.

STEWART: Let me ask you this. When I hear some number like 400 that happens once on one Tuesday in the month of March, should I get that excited?

Mr. GROSS: No. I mean, you know, we have to - they always tell you to keep the focus on the long-term. You know, the issues here that have to be resolved will take more than a day, more than a week, more than a few months.

STEWART: Daniel Gross is a senior business editor at Newsweek and "Moneybox" columnist for slate.com. Hey, thanks, Daniel.

Mr. GROSS: Anytime.

MARTIN: He's smart.

STEWART: He is smart.

MARTIN: He's funny.

STEWART: So I'm right to shred my 401(k). Basically, he confirmed, I've been doing the right thing. Not to even pay attention.

MARTIN: Stay the course.

STEWART: Yes, buy a shredder.

MARTIN: Stay the course, people. Don't freak out.

(Soundbite of laughter)

MARTIN: Don't go anywhere. We have all kinds of good stuff coming up. Of course, one of your favorite segments, I'm sure, some of the most-emailed, commented on and viewed stories on the web. We call it The Most, and we have a really special guest today!

STEWART: Very, very special guest for NPR listeners. You'll hear a little bit about Harry Potter. You'll hear a little bit about salmon in The Most, penguins and Lara Flynn Boyle. Yeah, that's quite a mix there. Stay with us here at the Bryant Park Project from NPR News.

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