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MICHELE NORRIS, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

ANDREA SEABROOK, host:

And I'm Andrea Seabrook.

The Federal Reserve rode to the rescue of the nation's beleaguered financial markets today. Three separate times, the Fed pumped more money into the banking system - a step it takes when it wants to reassure the financial markets. Each time, stock prices gained some ground only to fall back down again. At the end of the day, the Dow was down a mere 31 points - not so bad.

As NPR's Jim Zarroli reports, this latest decline happened amid new reports of trouble among mortgage lenders.

JIM ZARROLI: Nearly every day this week, there have been reports of another hedge fund in trouble or another lender having credit problems. Late yesterday, the nation's biggest mortgage lender, Countrywide, and its largest savings and loan, Washington Mutual, said they were feeling the pain of the housing meltdown. Overnight, interest rates spiked and the Fed was forced to pump about $38 billion into the banking system.

Nariman Behravesh is chief economist at Global Insight.

Mr. NARIMAN BEHRAVESH (Chief Economist, Global Insight): The worry is that as markets panic, the problem will, in effect, spread. And so essentially, what the Fed is trying to do is limit the damage, just to sort of contain the problem.

ZARROLI: The Fed's action seemed to work, and by the end of the day, the Dow Jones industrial average, which had lost as much as 212 points, rebounded sharply. But Behravesh says no one really knows what next week will bring or where the newest problems will crop up.

Mr. BEHRAVESH: Somebody used the analogy that a lot of investors feel like they're in the middle of a big minefield. They don't know where the mines are so they are frozen basically. They're paralyzed.

ZARROLI: As the hand grenades kept coming this week, Federal Reserve Chairman Ben Bernanke has been under growing pressure to cut interest rates. That would make it easier to raise money and give a lot of troubled hedge funds and mortgage lenders some breathing room. But on Tuesday, Fed policymakers said no. They said they were monitoring the mortgage meltdown, but they were more concerned about inflation and a rate cut now would only send prices higher.

That prompted this screed by CNBC's flamboyant commentator Jim Cramer, which has already become an Internet favorite.

(Soundbite of TV program "Mad Money with Jim Cramer")

Mr. JIM CRAMER (Host, "Mad Money with Jim Cramer"): Bernanke is being an academic. It is no time to be an academic. It is time to get on the Bear Stearns's call. Listen. Open the darn Fed window. He has no idea how bad it is up there. He has no idea. He has no idea.

ZARROLI: And that was just a loud version of what many people on Wall Street were saying privately. But just as many people say lowering rates now would be absolutely the wrong thing to do. In fact, many critics say the current problems are occurring because the Fed kept rates too low for too long. That made it too easy to borrow money. As a result, too many people got mortgages they couldn't afford, mortgages that in many cases were financed by pension funds and lightly regulated hedge funds.

Economist Peter Morici teaches at the University of Maryland.

Dr. PETER MORICI (International Business, University of Maryland): If people want to make irresponsible bets in the stock market, it is not the responsibility of the Federal Reserve to jump in and save the day. And if they want a villain, they should look in the direction of the investment banks in New York and the hedge funds that they have put in place and financed, which are doing all these irresponsible betting in the stock market.

ZARROLI: Morici notes that some colleges and universities have been major investors in hedge funds and they've seen their endowment soar as a result.

Dr. MORICI: How can a stock market generate for private endowments return just 15 or 20 percent a year when the economy is only growing at a 3 percent rate? The answer is Wall Street has been cooking up Ponzi schemes that are beyond the regulatory reach of the Federal Reserve.

ZARROLI: But the truth is that no one really knows how much trouble colleges or any other investors are really in because so much of the hedge fund world is shrouded in secrecy.

Today, there were reports that the Securities and Exchange Commission is looking into funds managed by Goldman Sachs and Merrill Lynch to try to gauge how healthy they are.

Bill Fleckenstein, who manages a Seattle investment partnership, says the financial world is so complicated these days, the Federal Reserve has no real way to assess how bad the turmoil is right now.

Mr. BILL FLECKENSTEIN (President, Fleckenstein Capital): It has become so complex and so riddled with derivatives, swaps, credit default spreads and the like, and the financial accounting is so opaque that they don't really know what's going on, in my opinion.

ZARROLI: And so the Fed has no choice but to monitor the situation and try to step in when needed - the way it did today.

Jim Zarroli, NPR News, New York.

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