JOHN YDSTIE, host:

The problems with subprime mortgages here continue to reverberate worldwide. Traders are watching the markets with one eyebrow raised these days and they're trying to decide whether they're still jittery about all the volatility of the last couple of weeks, or whether the actions taken by the Federal Reserve and other central banks is enough to ease worries.

If they decide it hasn't worked, it could have broad implications for our economy in the U.S. and for economies worldwide.

We're joined now by Gillian Tett, the markets editor for the Financial Times newspaper in London to talk about it.

Welcome to the program.

Ms. GILLIAN TETT (Financial Times): Thank you.

YDSTIE: The market seemed to have calm down over the last couple days. Does this mean that the worst has passed?

Ms. TETT: Well, the honest answer is that we just don't know. There is a lot of fear stalking the market and the big question everyone is asking is where are the losses from the subprime saga now sitting, and who is going to be hit next? And while we are still waiting for those answers, it's a very jittery climate.

YDSTIE: Federal Reserve officials say they're optimistic that the steps they've already taken to stabilize the markets are going to work. What's your sense? Do central banks officials in Europe agree?

Ms. TETT: Well, I think the honest answer is that people are still very much holding their breath. What is clear is that the steps that the central banks have taken have helped to lower the cost of borrowing money overnight for the banks. But what they have not done yet is put enough competence in the system that people are willing lend to each other for, say, two, three months or so.

And until we get that so-called three months money market up and running again, until the banks feels sufficiently competent and secure to push money out to each other, it will be far too early to say that the financial markets have calmed down properly.

YDSTIE: And what do the central banks have to do to make that happen?

Ms. TETT: Well, unfortunately, the real secret to combating this fear doesn't lie with the central banks right now. The problem that's driving all this unease is that nobody knows where the subprime losses are. And unfortunately, because many of the institutions holding the subprime losses are not banks, they're hedge funds, they are structured finance vehicles, special investment vehicles, those aren't directly necessarily under the control of the central banks. So until we wait and see where the losses actually emerge, we're not going to know if you like where the bodies lie.

YDSTIE: Of course the current crisis is centered in the home loan market in the U.S., and I understand that there's also a subprime market in the U.K. where there are fears that loans are going bad and that there may be difficulties hiding there.

Ms. TETT: Yes. I mean the U.S. is certainly not the only country in the world with a property issue right now. The U.K. has also had a pretty extreme property bubble. We have had lending standards relaxed.

Now, in terms of the actual quality of the subprime loans in the U.K., there isn't quite as much of a crisis right now as there is in the U.S. But what there certainly is, is a realization that the institutions that have been buying, say, U.S. subprime loans, U.K. subprime loans, have included many European investors and European banks. Unfortunately, right now all of these loans from the U.S., from the U.K., from elsewhere in Europe, are jumbled together in complicated financial instruments. And nobody quite knows just what's in there, how much is toxic, and who's holding the problems.

YDSTIE: Thank you very much.

Ms. TETT: Thank you.

YDSTIE: Gillian Tett is the markets editor for the Financial Times newspaper in London.

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