RENEE MONTAGNE, host:
And here's where we stand this morning on the financial crisis. The Dow Jones Industrial Average jumped almost 500 points yesterday, making up a chunk of the ground lost on Monday when it fell nearly 800 points. The Senate takes up a revised bailout plan this evening. And to get some analysis, we turn now to David Wessel. He's the economics editor of The Wall Street Journal and a regular guest on our program. Good morning.
Mr. DAVID WESSEL (Economics Editor, The Wall Street Journal): Good morning, Renee.
MONTAGNE: David, are the changes to the proposal enough to clear, not just the Senate tonight, but also when it gets back there, the House?
Mr. WESSEL: Well, that's really the $700 billion question now. We don't know. They only have to change about a dozen votes in the House to get it through, and there's clearly some clever politicking going on here. The move to increase the ceiling on deposit insurance to 250,000 from the current 100,000 is very politically popular with smaller banks, and there are a lot of smaller banks in every congressman's constituency. And they only need to get enough bankers to call enough congressmen to push the bill over the edge. ..TEXT: MONTAGNE: Well maybe here's the other, if there's another, $700 billion question. If it passes, in your opinion, is it enough to fix the economy?
Mr. WESSEL: I think the conventional wisdom now is correct, that it's not a perfect plan, but the alternative, doing nothing, is worse. The problem has gotten so much bigger in the last couple of weeks that it may not be sufficient, but it is an important move in two respects. One is the banks don't have enough capital. The government, the taxpayers are going to have to put some money in. And this is the way to do that. And secondly, a lot of what's going on now is a widespread global loss of confidence in the financial system. And at some point, that becomes so corrosive that no amount of money or plumbing fixes can change things. So if this gets investors and ordinary people to think, OK, the leaders of the world economy, their government officials are on the case, they're fixing it, that could have a very salutary effect very soon.
MONTAGNE: Now, top financial officials, Treasury Secretary Henry Paulson, Fed Chairman Ben Bernanke, they were predicting calamity if the bailout didn't pass. It had much of the leadership in Congress behind it, even though nobody loved it. So what exactly happened? I mean, a failure of leadership or just an overwhelming resentment on the part of voters out there?
Mr. WESSEL: I think both things. I think there was a failure of leadership, that people didn't have much confidence that those people who had allowed this to get so bad were going to have the right solution. There were a lot political missteps. But I think your other point is a good one. For some time, we've seen a widening of the gap between economic winners and losers in the U.S., and particularly people on Wall Street. These financial engineers have done extremely well, and people have read about the amount of money they make. A lot of voters thought this was not a bailout for the economy; it was a bailout for Wall Street. They called their congressmen. Congressmen in close races this fall heard that call and voted against it. And I think that's a really significant political milestone.
MONTAGNE: Well, how has the economic outlook changed in this last week without this rescue?
Mr. WESSEL: The only question is how much worse has it gotten? As everybody has now become aware, the problems on Wall Street are spilling over to the rest of the economy. Unemployment is rising. Even big companies are having trouble borrowing money at reasonable rates. Banks are unwilling to lend to each other. And all that got worse. So economists who have been attempting to forecast the rapidly changing economy are now getting much gloomier. There's widespread consensus now that we're in recession or are about to go in one, and it won't be limited to the United States. And serious sober people, not the crazy extremists, are talking about an unemployment rate which could rise from today's 6.1 percent to seven percent even if this rescue gets done. This is going to take a long time to work its way through the economy.
MONTAGNE: David, as always, thanks very much.
Mr. WESSEL: You're welcome.
MONTAGNE: David Wessel is economics editor of The Wall Street Journal.
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