Paulson Meets With Bank CEOs On Rescue Plan
MICHELE NORRIS, Host:
From NPR News, this is All Things Considered. I'm Michele Norris. When the stock market closed today, cheers actually rang out on Wall Street and there were surely some cheers and perhaps sighs of relief around the country as well. After eight miserable days, the market snapped back in a very big way, the Dow gained a whopping 936 points. The surge followed a weekend in which finance ministers around the world developed more aggressive plans to rescue the global banking system. The Bush administration plans to announce tomorrow that it will expand protections for major U.S banks. Some of the details of the plan were discussed today at a meeting with bank leaders in Washington. The move comes at a time when many of the biggest names on Wall Street are suffering from sharp losses tied to the subprime mortgage crisis. NPR's Jim Zarroli joins me now. Jim, what do we know about the plan the Bush administration plans to announce tomorrow?
JIM ZARROLI: Well, the plan is going to be revealed tomorrow morning. The president is supposed to speak in the morning in the Rose Garden. The Treasury Department says the plan is basically aimed at restoring functioning to the credit markets. We do know some of the details of the plan. For one thing, the government will be allowed to make voluntary injections into banks of $250 billion, in other words they can buy stock in U.S banks. The plan also addresses interbank lending. Banks lend to each other. This is an important part of the way the credit markets function. But because of the financial meltdown, they have been basically afraid to do this, which is one of the reasons why credit has been frozen. The plan will allow the Federal Deposit Insurance Corporation to insure certain inter-bank lending transactions. It will also allow the FDIC to increase the insurance limits on some non-interest-bearing accounts. So all of this will really increase the scope of the protections that the government offers banks right now. The point is to restore confidence and try to unfreeze the credit markets.
NORRIS: Jim, it sounds like the administration didn't much care much for this idea. Why is the administration doing this now and what does it hope to accomplish?
ZARROLI: Well, of course there is some urgency to the situation just because of the great problems in the credit markets. One of the problems for the administration is that European governments have been moving ahead with some guarantees for banks in their countries and one of the problems you have there is the issue of arbitrage. In other words if European banks offer guarantees to their customers and American banks don't, then American customers of the banks may be tempted to want to put - withdraw their money from accounts in this country and send them overseas and that would be a big problem for the value of the dollar, among other things. But that is something the government wants to avoid.
NORRIS: Big day on Wall Street with the Dow gaining more than - gaining 936 points. Was this increase connected to news about this plan and also the action taken by the European finance ministers?
ZARROLI: Yeah, I think that might have played a part in the rally. There has just been a lot of talk about what the governments were going to do, a lot of sense that they are moving towards some sort of coordinated action. You know it was a very powerful rally, really the 5th biggest percentage gain in the history of the Dow. I did talk to some people in the market today who said that they think that mainly what was going on is that stocks went down so much last week that we sort of hit bottom and now we're beginning to head back up again. It's what they call a bounceback in the market. It just fell so much that people saw buying opportunities and rushed in to snatch up stocks.
NORRIS: When you talk about balancing I guess the question is whether they will stay up. That's NPR's Jim Zarroli speaking to us from New York. Thanks so much, Jim.
ZARROLI: You're welcome.
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