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STEVE INSKEEP, host:

It's Morning Edition from NPR News. Good morning, I'm Steve Inskeep.

RENEE MONTAGNE, host:

And I'm Renee Montagne. You could be forgiven if today's news from Wall Street made you want to stay in bed this morning, but it will be hard to avoid the news from over the weekend. Some of the biggest names in the financial world are in trouble.

INSKEEP: Lehman Brothers, a huge investment bank, is going into bankruptcy.

MONTAGNE: Merrill Lynch remains afloat, but Bank of America is expected to buy it.

INSKEEP: And the insurance company AIG is examining its options, we're told. Its stock plunged again last week, losing about half of its remaining value.

MONTAGNE: And we're joined now by David Wessel to talk more about this. David, things are changing even as we go on through the morning. What exactly do things look like today?

Mr. DAVID WESSEL (Economics Editor, The Wall Street Journal): Well, they don't look good, but they don't look as bad as a lot of people anticipated. The stock market's down, it was down about 300 points, but it came back a little bit. So, it still remains a remarkable weekend where just an extraordinary amount of stuff happened, any one chapter of which would have been a crisis in its own right. But we don't seem to be - it doesn't seem to be the end of the world this morning, at least not so far.

MONTAGNE: Speaking to Wall Street Journal economics editor David Wessel. And here, as we cover these stories, we are hearing now from President Bush, who spoke about these events. Here's just a clip of what he had to say.

President GEORGE W. BUSH: In the short run, adjustments in the financial markets can be painful, both for the people concerned about their investments and for the employees of the affected firms. In the long run, I'm confident that our capital markets are flexible and resilient and can deal with these adjustments.

MONTAGNE: And that was President Bush speaking about the doings over the weekend and this morning. David, let's talk about one of those events. Why didn't the government save Lehman the way it stepped in for Bear Stearns, and Fannie Mae and Freddie Mac?

Mr. WESSEL: Well, the Federal Reserve and the Treasury decided that it was time to draw a line in the sand because they felt that if they put money into this deal, it would be sending a signal that anytime a financial house gets in trouble, they could come to the government or the Fed or the Treasury to bail them out. And apparently, they also thought that there was just - the suitors for Lehman Brothers weren't really serious, and it was - the deals weren't going to go through. And finally, they calculated - and the market seems to bear them out - that if Lehman went under, the market could absorb that shock. And so far today, it has been.

MONTAGNE: Well, let's turn to Merrill Lynch. Why did Bank of America buy Merrill Lynch?

Mr. WESSEL: Well, Ken Lewis, the CEO of Bank of America, had a press conference today, and he made clear he just thinks this is a bargain. There's a fire sale going on in Wall Street, and if you have money and are willing to gamble, you can make a good deal. When the economy comes back, when this episode's over, as it surely will end some day, Bank of America will be sitting on this financial colossus with global reach.

MONTAGNE: Although, of course, Bank of America's already sitting on the very troubled home lender, or what was once the troubled home lender, Countrywide.

Mr. WESSEL: Well, sure. I mean, they must calculate that they have the management capacity to handle this. And when we - we've seen in the past, sometimes firms get arrogant about their abilities, and they look back on it and see they've made a mistake. But they clearly decided it was a gamble worth taking.

MONTAGNE: Now are these events a sign that the financial crisis is getting worse, which a lot of people outside these events - feels like, or a sign that somehow, we're near the end, sort of a final shakeout?

Mr. WESSEL: Well, that's a good question. I sure hope we're near the end. It's too hard - it's hard to tell right now. Is this another bad episode that will be followed by another bad episode, perhaps the problems with the insurance company AIG, and we'll have this downward spiral where credit contracts and the economy suffers? Or is this some kind of catharsis in which bankers 'fess up to their mistakes and this proves to be the bottom? It's the question we'll have to ask ourselves every hour today, but we won't know the answer for days or weeks.

MONTAGNE: And obviously, you don't have an answer.

Mr. WESSEL: I don't have an answer, no.

MONTAGNE: David, finally, what does this all mean for people, as I said, many - most of whom are outside the financial markets?

Mr. WESSEL: Right, I mean, the big question here is what happens to the willingness and capacity of financial institutions to lend to consumers and companies. If this leads them to pull back even more, that will choke off the credit that makes the economy keep going, and the economy will stall. If instead they manage to get beyond the next couple of days and lending doesn't contract, then we may get through this with just a period of rough growth, but not very deep recession. That's the key, how much lending goes on in the economy.

MONTAGNE: And we'll be talking about this to you in the coming days. Thanks very much.

Mr. WESSEL: Sure.

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

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