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Will The Week's Events Stop The Market Slide?
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Will The Week's Events Stop The Market Slide?

Business

Will The Week's Events Stop The Market Slide?

Will The Week's Events Stop The Market Slide?
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  • <iframe src="https://www.npr.org/player/embed/95633566/95633534" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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How can G-7 leaders or the five-point plan solve the financial crisis? Scott Simon discusses this week's economic news with NPR's John Ydstie.

SCOTT SIMON, host:

President Bush, of course, met this morning with the finance ministers of six other industrialized nations to talk about possible solutions to the global financial crisis. Afterward, he delivered a statement in the Rose Garden at the White House.

(Soundbite of President George W. Bush statement, October 11, 2008)

President GEORGE W. BUSH: The United States has a special role to play in leading the response to this crisis. That's why I convened this morning's meeting here at the White House, and that is why our government will continue using all the tools at our disposal to resolve this crisis.

SIMON: NPR's economic correspondent, John Ydstie, joins us. John, thanks for being with us.

JOHN YDSTIE: You're welcome, Scott.

SIMON: And what are some of those tools? What's left in the equipment bag?

YDSTIE: Well, there's a lot of tools that have already been put to work, and the president has taken a listing of them in his recent appearances, I think, just to remind people that a lot is being done. There is the increased deposit insurance on bank accounts, for instance, the Fed getting into the commercial paper market to help businesses fund their daily operations. And then, of course, there's the $700 billion bailout bill, which actually had a bit of a change in emphasis this week.

Last night, Secretary Paulson outlined how some of that money would be used to buy up stock in banks as a way of getting added capital into the banking system quickly. Not a lot of details, but he suggested the government would not be taking over banks with this new power. Rather, it would simply buy stock like any investor, presumably leaving current management in place.

SIMON: Now is that different from buying up toxic mortgages?

YDSTIE: It is different. That will still be a part of the plan but Secretary Paulson, who had initially opposed the idea of government directly buying stock in banks, acknowledged yesterday that that would actually be a more efficient way of injecting capital than buying bad assets. And that's because for every dollar you spend on new stock in a bank, which becomes bank capital, the bank is allowed to make loans of ten dollars, and that's a much bigger bang for the buck than you get from buying up bad assets.

SIMON: As I understand it, the finance ministers couldn't agree to endorse a British plan that would guarantee all lending between banks. What have they come up with instead?

YDSTIE: Well, what they said was they would take all necessary action to solve the crisis, and they came up with a framework, a five-point action plan. Not identical policies. Secretary Paulson had made it clear all week that identical policies didn't make sense in economies as divergent as the U.S. and Italy, for instance. But the action plan included agreement among the countries to do everything necessary to keep key financial institutions functioning, to ensure that banks can easily raise capital, to make sure deposit insurance in all countries is robust, to take the necessary steps to unfreeze credit markets, to get the mortgage-lending industry going again.

SIMON: John, the New York Times reports today that GM and Chrysler are in preliminary merger talks. Is the auto industry in particular trouble?

YDSTIE: It is in particular trouble. And in fact, some of the meltdown that we saw last week in the markets on one day was partly due to the auto companies predicting really horrible sales figures projection for 2009. Now, I don't know about Chrysler and GM. If you put two struggling companies together, do you get a better company? I guess we'll see what happens.

SIMON: NPR's economics correspondent John Ydstie. Thanks so much for being with us.

YDSTIE: You're welcome, Scott.

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