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RENEE MONTAGNE, host:

One big Wall Street deal did happen over the weekend. Bank of America is taking over Merrill Lynch. Another big financial institution, the insurer AIG, is teetering on the brink of collapse. Stock prices have fallen sharply in New York and overseas, and we're now joined by NPR's Jim Zarroli in New York. He's been following this story. And Jim, what has been the reaction so far in the stock market? I've just said, obviously, fallen sharply, but tell us more.

JIM ZARROLI: Yeah, we saw stock prices fall around the world. Generally, we looked at the major global index is down 3 to 4 and a half percent. In the United States, we haven't seen the, you know, wholesale collapse that some people were afraid of, but the Dow is down more than 300 points now. Both AIG and Bank of America are Dow components, and they're both down today. So that tends to drag the whole market - the whole Dow Jones Industrial Average down.

We're also seeing a drop in the yields charged for Treasury bills. That happens whenever there's a lot of uncertainty in the markets. People take their money out of the risky kinds of investments and put them in government Treasury bills which are still seen as a safe investment. That causes rates to go down. And we've seen oil prices come down a lot, which is something that happens whenever people expect the economy to slow down.

MONTAGNE: And back to that sale of Merrill Lynch to Bank of America. Break down for us what exactly happened there. And it was real quick.

ZARROLI: It was really fast. It was almost instantaneously - all of these are part of the same collapse of confidence in the financial markets. Merrill Lynch has had big losses in the mortgage markets, as you know. The new CEO, John Thain, had tried to correct that by taking bad assets off the books, drawing in investment money. That worked for a while, but there was just this slow drip of loss of confidence in Merrill.

And once Lehman was allowed to go under this weekend, I think Merrill Lynch just said, you know, the only way for us to survive is to become a bigger and stronger company. So they became part of Bank of America, which is, you know, the biggest financial company in the county.

MONTAGNE: And as we're just hearing - I mean, Merrill Lynch is, you know, one of a number of firms that have disappeared just in these last months. What does this say about the financial markets and how they are going to look like from now on, if it is not the end?

ZARROLI: Well, it says we're seeing just a huge, historic restructuring of Wall Street. We had Bear Stearns bought by JPMorgan Chase. And now, Lehman and Merrill are gone. And we're just seeing a shakeup. The power structure is changing. At the same time, you're seeing these firms disappearing, but you're also seeing some other companies getting bigger. Bank of America, as I said, was already the biggest bank. Now, it's got a big brokerage operation, too. It's even bigger and more powerful.

MONTAGNE: And as I mentioned earlier, AIG, a big financial services company, insurer, also is in big trouble. You say its stock is really down. What's happening there?

ZARROLI: Yeah, AIG is maybe not as well-known to a lot of people as Merrill Lynch is, but it is a big, very powerful insurance and financial services company. It's also been having a liquidity crisis. One of the things that AIG did was insure bonds tied to the mortgage market, and as mortgage defaults have gone up, it's had to cover these bonds. So it's faced a liquidity crisis. There have been questions about whether it has the resources to cover what it owes. There's been talk about a rating downgrade, which would really be devastating to the company's bottom line.

Yesterday, AIG came out and said it was thinking of a restructuring. It hasn't really announced the details of that yet. But there have been all kinds of rumors about what it will do, sell off its commercial aircraft division. And we'll have to see what happens. One of the possibilities now is that it's going to the Federal Reserve to try to borrow money.

MONTAGNE: Just in a few seconds, what kind of an impact will this all have on the broader economy?

ZARROLI: Well, all these firms in the financial sector have ties to each another, many relationships between them, many different kinds of firms. The point is it's not just AIG or Lehman in trouble. It causes ripple effects. And that can hurt the broader economy.

MONTAGNE: Jim, thanks very much.

ZARROLI: You're welcome.

MONTAGNE: NPR's Jim Zarroli speaking to us from New York.

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