Dow Falls Below 8,600 For First Time Since 2003
MELISSA BLOCK, host:
From NPR News, this is All Things Considered. I'm Melissa Block. It was another very rough day for stocks. The Dow plunged 678 points - that's more than seven percent - ending below 9,000 for the first time in more than five years. The pattern has been the same in recent days. The Dow bounces up and down in the morning, turns negative in the afternoon, and takes a dive in the last hour of trading. Today was no different, and this on the first anniversary of the market's all-time high, over 14,000. We turn once again to Cary Leahey, senior economist with Decision Economics. Thanks again for being with us.
Dr. CARY LEAHEY (Managing Director & Senior Economist, Decision Economics): You're very welcome.
BLOCK: Cary, I spoke with you just two days ago, and then we were saying the Dow fell below 10,000 for the first time in four years. Two days, and now we're below 9,000. What's going on?
Dr. LEAHEY: Well, you continue to have very serious efforts made by the global central banks. They did a coordinated rate cut sooner than I expected, and it even included players like China in there. You have a partial nationalization of the British banking system and talk from a conservative Republican administration of a partial nationalization of our own banking system by direct purchases of bank stock. I mean, once again there you have a situation where the market just cannot wait for an auction plan which was to kick in sometime in early November. Can't wait that long. And the only way you can give money to people quickly is to write them checks, and the Bush administration may have to write checks to banks right now.
BLOCK: And all those things that you mention - the interest rate cuts, everything else - were supposed to stabilize markets. But clearly it's not working.
Dr. LEAHEY: Well, the difficulty you have with this situation is people are saying that it's a panic move rather than a sign of resolution, or they should have done this long ago. Or you can make an argument that they should have gone at the root cause of the problem which is homeowner foreclosures. Ten years ago they should've gotten at the root cause of the problem which was lax standards in mortgages to begin with. So it's a little bit too late, and the market is just trading down off of fear and just more fear.
BLOCK: And what's going on at the very tail end of the trading day? I mean, it had been tapering down throughout a good chunk of the day, but then in the last little - in the last half hour or so, it just takes a dive.
Dr. LEAHEY: Well, you probably have two things going on. Probably the individual investors like you and me out there probably called their brokers and they're putting in those trades. And also there probably are some mechanical programs that are triggered late in the day. And so you're getting both some very large institutions doing selling and some little people doing some selling as well. But everyone is trying to head to the door in the last half hour.
BLOCK: And what could possibly turn this around? I mean, how many more days dropping 500, 600 points are we likely to see here?
Dr. LEAHEY: Well, I would have said you should get some bottom, whether it's false or not, and have a very strong recovery which tends to happen. And even though you could talk about the horrors of the '30s where the markets fell by over two-thirds, but that happened over a three-year period. Now we're talking about it happening at hyper speed in one year. I think it's time, and I think once again - and I hope people don't think I'm being facetious when I say it - to use an analogy that's springing up around here, you really do have to treat this kind of like a situation at a burger drive-in where you're going to give your money for your Big Mac, but you're afraid at the next window they won't give you the Big Mac. So you won't give them the money, and they won't make the Big Mac. I think the government is going to have to, in some sense, guarantee all transactions so you know at the next window you're going to get the Big Mac that you ordered just two minutes ago.
BLOCK: Cary, are you among those who think we are either headed for a recession or in one right now?
Dr. LEAHEY: Unfortunately, I felt we were in a mild recession starting at the beginning of the year, and unfortunately things intensified in September even before the markets melted down. Now, we did have a lot of lousy weather in that month, but I think things got worse. And people are scared that, A, the credit crisis is global and, B, that the U.S. recession has intensified and is also spreading quite significantly among the rest of the world.
BLOCK: Well, Cary Leahey, senior economist with Decision Economics, thanks very much.
Dr. LEAHEY: You're very welcome.
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