Markets Not Impressed With Fed's Credit Fix
STEVE INSKEEP, host:
It's almost as if somebody had placed a curse on Wall Street. Stocks dove again yesterday even though the Federal Reserve intervened again to fight the credit crisis. NPR's Jim Zarroli is covering the story. And, Jim, how much did the markets fall?
JIM ZARROLI: Well, you know, Steve, people keep saying that this credit crisis that we're in is kind of an economic Pearl Harbor. You might say that the stock market is on something like the Bataan Death March right now. The Dow is down more than 13 percent in the past two weeks alone. Yesterday, the Standard and Poor's 500 Index fell below a thousand for the first time in four years. It has really been a bad couple of weeks for the market and yesterday was even worse.
INSKEEP: And let's just mention this one number, the Dow falling about 500 points which used to be an amount that would set people's hair on end, but suddenly it's normal.
ZARROLI: That's right.
INSKEEP: Well, the day began with the Federal Reserve trying to send some reassuring signals. So, what caused stocks to go down?
ZARROLI: You know, one of the things that's happening right now is that you're starting to see third-quarter earnings coming in and they reflect the economic slowdown that's taking place, but really there is no simple cause of the decline. We are just in a crisis of confidence. It doesn't take very much to push prices down. Here's an example. Morgan Stanley is one of the big American banks that's, you know, had some financing issues, Japan's biggest bank has agreed to give it $9 billion in exchange for a minority stake in the company. Yesterday, there were rumors the deal had fallen apart. The rumors turned out to be false. But in the meantime, Morgan Stanley's shares fell 25 percent.
INSKEEP: Well, let's talk about efforts to restore confidence, because Ben Bernanke, the Fed chairman, makes it known that the Fed is going to intervene to make it easier for companies to borrow money, which they've been having trouble doing, and then he gives a big speech yesterday before a group of economists. Did any of that affect the markets at all?
ZARROLI: This is one of those things that makes you realize just what a strange time we're in. Bernanke spoke, he sounded very alarmed about the economy. He said conditions probably won't begin to turn around until next year. You really had him all but come out and promise that the Fed was going to cut interest rates again soon. And this is ordinarily the kind of thing that the market likes to hear, right? But, Bernanke spoke and, you know, the stock market just fell even further.
INSKEEP: And so, Bernanke must be asking stock traders, 'Was it something I said?'
ZARROLI: Yes, that's right. I think among stock traders, there is a certain amount skepticism right now about the Fed. It started cutting rates more than a year ago, which is what it does in an economic slowdown. And in normal times, that would have lead to a rebound in growth by now, or at least the beginning of that, but these are not normal times. You still have all this fear hanging over the market about economic conditions. We're starting to see now a lot of concern about a recession overseas. So I think people maybe just feel that the problem has gotten too big for the Fed to solve on its own. Maybe it has to work with other central banks to could really try to address what's going on.
INSKEEP: Have any of the actions by the Federal Reserve, the US Congress or anybody else actually begun to improve the credit situation that seems to be at the base of the problem here?
ZARROLI: Well, this was actually one of the bright spots yesterday. You actually had a slight easing in credit, something else that the Fed did yesterday. The Fed said it was setting up a special entity that would buy commercial paper from companies. Now, the commercial paper market is the place where a lot of companies go when they want to raise money on a short term basis, like they're short of cash, they need to make payroll.
INSKEEP: They're basically selling a bond, it's an IOU.
ZARROLI: Exactly. It's the commercial paper market. Well, this market has just been a disaster lately. No one wants to buy commercial paper, so the Fed basically came out and said, we will buy commercial paper from companies. We will essentially be their lender of last resort. And, you know, this seemed to make something of a difference yesterday. We'll have to see over the next few days whether conditions keep improving, but for now, it started out well.
INSKEEP: NPR's Jim Zarroli, thanks very much.
ZARROLI: You're welcome.