STEVE INSKEEP, host:
Elsewhere in Europe and Asia stock markets also fell on the news of no bailout plan, at least for now but markets, some of them in both regions recovered from their early losses. There seems to be some optimism that Congress will figure out something to do eventually. Still the European commission this morning issued a sharp statement calling on the U.S to live up to its quote 'special responsibility to resolve the global credit crisis'. Joining us now from London is Philip Coggan. He's the capital markets editor and a columnist for The Economist magazine. Welcome to the program.
Mr. PHILIP COGGAN (Columnist, The Economist): Good morning.
INSKEEP: How are people where you are digesting all this news?
Mr. COGGAN: Well, I think with astonishment, it reminds us of that famous headline: It's sort of Congress to markets drop dead.
Everybody expected some kind of version of the plan to go through and I think all the people I was talking to in the markets yesterday were just stunned. It came very late in European time that it have been rejected and hoping that minds will be changed, that something will be passed later in the week.
INSKEEP: Well, had the markets already built into their prices the notion that the bailout was going to go through?
Mr. COGGAN: They were nervous all day yesterday and talking to people there were some worries that the bailout wouldn't be passed. And of course, we have plenty of bad news yesterday in Europe anyway. A British bank Bradford and Bingley had to be nationalized. The Icelandic government had to rescue a bank. The three governments in Belgium, Netherlands, and Luxemburg had to rescue another bank Fortis. And this morning we had yet another bank that has had to have an emergency injection called Dexia which is in France and in Belgium. So we already have plenty of bad news but the rejection of the plan by Congress kind of put the tin lid on it.
INSKEEP: Well now, let me understand what's happening with European banks because that appears to have been one of the factors in the American market collapse yesterday. What is making so many banks have so much trouble in Europe right now?
Mr. COGGAN: We're seeing effectively a run on the banks not by retail depositors but by the institutions. A lot of banks get their money, not from people going to branches and putting in deposits but from borrowing from big pension funds and from money market funds. And after the collapse of Lehman's and Bear Sterns earlier in the year those money market funds are now being nervous about putting money with banks. They're taking it away and this is making banks run short of cash very quickly. So some sort of extra capital needs to be found and that's why governments are stepping in.
INSKEEP: Does it appear that European governments have the power without going to their parliaments for a recovery here?
Mr. COGGAN: Yes. So far all the governments have been able to act. The tricky thing is going to come if a very big continent wide institution gets into trouble. The Swiss banks are often talked about in this respect because they are probably too big for the Swiss government to rescue. And while we have the European Central Bank which sets interest rates, we don't have the equivalent of a European treasury which can erase money from taxpayers to bailout a bank. So, that's a problem that we might face a few months down the road.
INSKEEP: One other thing, Mr. Coggan part of the reason there was so much skepticism about the bailout in the United States was not just he cost but the question of whether it was really going to work anyway. Do European observers assume that if this bailout passes in the United States, it'll actually help?
Mr. COGGAN: I don't think it's - I think it's a necessary but not sufficient condition to solving the crisis. We need confidence back in the banking system. And confidence might well have been helped by the idea that asset prices would be propped up. But we're probably going to need more than that and I suspect before long we'll be talking about interest rate cuts round the globe to try and help solve this crisis.
INSKEEP: Mr. Coggan, thanks very much.
Mr. COGGAN: Thank you very much.
INSKEEP: Philip Coggan is with The Economist magazine. He is their capital markets editor.
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