What Will It Take To Invigorate Wall Street?

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Even though Congress passed the massive Wall Street bailout plan, the financial markets are distinctly unhappy. The Dow Jones Industrial average finished below 10,000 for the first time since 2004. David Wessel, economics editor at The Wall Street Journal, talks with Steve Inskeep about what's upsetting the markets.


It's Morning Edition from NPR News. Renee Montagne is away. I'm Ari Shapiro.


And I'm Steve Inskeep. Apparently $700 billion plus a lot of tax breaks and other incentives are not enough to reassure the financial markets. We've had another day of market turmoil after Congress passed a bailout. The U.S. stock market fell to its lowest levels in four years yesterday. Japan's main stock index hit a five-year low. European markets started higher today before sliding, which leaves the question of what the markets still need to recover. We're going to put that question to David Wessel. He's economics editor of The Wall Street Journal. Good morning once again, David.

Mr. DAVID WESSEL (Economics Editor, The Wall Street Journal): Good morning, Steve.

INSKEEP: Does all these news mean investors think the bailout is not going to work?

Mr. WESSEL: It sure looks that way. The problem is that the crisis is now much more widespread than it was a few days ago. It turned out to be infecting Europe. It's worse than it looked a few days ago. So substantively things are worse. Secondly, we now have this generalized loss of confidence, a kind of near panic, the sort of thing that isn't always rational, but is very powerful. And third, people have decided that the economic outlook is looking much worse than it did, and the market's partly reflecting that.

INSKEEP: Well, let's deal with a couple of those symptoms. First, the facts. You said things are substantively worse than a few days ago. What's worse?

Mr. WESSEL: More banks have been infected, especially banks now in Europe. That means there'll be less credit flowing to the economy until the banks can rebuild themselves.

INSKEEP: And then when you say there's panic, I suppose that's what you see when stocks drop 800 points and then go back up hundreds of points, suggesting that people then suddenly realized maybe they'd gone too far.

Mr. WESSEL: Right. But also if you look in the credit markets, which are - less attention in the public popular press, but very important, there's this widespread unwillingness of banks to lend to each other, and you see very unusual movements in the interest rates that banks use with each other. The credit markets are - they keep saying frozen, which means banks won't even lend to each other, let alone to you and me.

INSKEEP: Although, shouldn't banks be saying - isn't the logic of the bailout that banks should be saying, well, these people that we're not sure how solvent they are, they're going to be getting help from the federal government. They're going to be getting bad assets off their books within a matter of weeks or months? In fact, the federal government is going to start this program as soon as tomorrow. Shouldn't lenders be saying things are going to get better and have a little more confidence?

Mr. WESSEL: Well, what they should do is one thing. But what they are saying is, I'm not worried so much about what's going to happen a month from now. I'm worried about whether the guy that might put money in overnight is going to be there tomorrow. I think there's some feeling that - a lot of confusion about what the bailout will actually be. Is it big enough? Is it international enough? So at a time like this, you're right that the Treasury is moving as fast as it can. They're putting out bids. People are supposed to tell them by the close of business on Wednesday whether they want to be involved in managing these assets and stuff. But even as fast as they move, it's not moving as fast as the markets are moving.

INSKEEP: One of the questions you mentioned that is on investors' minds is this international enough? Are you saying people are worried that trouble overseas might not be properly managed, and that could drag down American institutions, even as the U.S. government tries to save them?

Mr. WESSEL: Oh, yeah. Absolutely. Look, the U.S. economy for some time now has been very reliant on exports, the stuff we sell to the rest of the world. If the rest of the world is doing lousy, we're going to sell less stuff to them. And that means our economy will slow. It's also we saw how difficult it was even within one country, the United States, to have the political leadership come together and decide how to rescue the financial system. Well, in Europe, there's a dozen countries that are having trouble agreeing. And then to get a transatlantic agreement could be even harder, and a global problem may require a global solution that just is very difficult to fashion.

INSKEEP: We're talking with David Wessel of The Wall Street Journal who's been our guide so often through what must be the biggest financial story of our lifetimes. And let me ask more about that effort of cooperation. We are told, David Wessel, that finance officials and central bankers from around the world are gathering in Washington later this week. Do they agree enough philosophically that they even could come up with a coordinated response?

Mr. WESSEL: I think that when ministers and central bankers from around the world meet in Washington at the end of the week, they're going to have enormous pressure to join hands and at least promise people that they understand there's a problem and they're going to try and work on it. I think it's difficult to see them coming up with some master plan in a matter of days, but talking about ways to perhaps have coordinated action across country on lower interest rates or to find some way for governments to make short-term lending available to businesses will definitely be on the table. That's one thing that's really changed in the last week. Until a week ago, or two weeks ago, Europe could say this is America's problem and we're just getting the fallout. Now it's Europe's problem as well, and that'll put a lot of pressure on people to come with some joint statement at least, if not a plan of action.

INSKEEP: And just in a couple of seconds, do other countries have the kind of huge resources the U.S. government has to throw at this?

Mr. WESSEL: Nobody has the resources of the U.S. government, but nobody has a problem quite as deep as the U.S.

INSKEEP: David, thanks very much.

Mr. WESSEL: It's a pleasure.

INSKEEP: David Wessel is economics editor of The Wall Street Journal.

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