MELISSA BLOCK, host:
From NPR News, this is All Things Considered. I'm Melissa Block. First this hour, the financial news after yesterday's almost 800 point drop in the Dow. One day after the House rejected a $700 billion financial bailout plan, investors seemed to take heart in the idea that the bailout might be resuscitated. The stock market rallied today. The Dow regained more than half of what it lost yesterday. But as NPR's Jim Zarroli reports, in the credit markets, conditions are tighter than ever.
JIM ZARROLI: The volatility in the stock market is getting a lot of attention these days. But talk to most economists and they're much more concerned about what's happening in the credit markets. The defeat of the bailout yesterday sent the credit markets into a tailspin. But unlike stocks the credit market didn't bounce back.
Mr. TONY CRESCENZI (Chief Bond Market Strategist, Miller Tabak and Co.): Very little money is being generated in the credit markets. So it's a seizing-up of the credit markets, and it's gotten worse since the failure to pass the bailout bill.
ZARROLI: Tony Crescenzi of Miller Tabak studies the bond markets. He says with all the bad news in the economy right now, companies of all kinds have been having a lot of trouble raising money they need. Banks are reluctant to lend, and investors are afraid to buy their bonds.
Mr. CRESCENZI: Companies are not issuing bonds. The last two weeks' issuances of bonds have been only about $6 billion. That's about what we typically see in a day.
ZARROLI: After the bailout plan was defeated, a key lending rate, the London Interbank Offered Rate, or LIBOR, rose to its highest level in seven and a half years. A lot of lenders peg their interest rates to LIBOR, and so when it rises, it makes it a lot more expensive for businesses to borrow. Delaware-based Theater Xtreme is a small retail chain that sells home theater systems. President Bob Oberosler says the company has had to scale back some of its expansion plans because it can't raise money. He says European investors in particular have suddenly grown much more skittish about lending money to U.S. companies.
Mr. BOB OBEROSLER (President, Theater Xtreme): Word I'm getting, this is obviously third hand through my investment bankers talking with, you know, their people, is that they're starting to get a little shaky about the U.S. financial system, and, you know it's best to kind of hold on to their money and kind of see where this thing shakes out.
ZARROLI: Bush administration officials say a bailout plan can begin to purge some of the bad mortgage debt from the financial system and help restore confidence in the nation's economy. But Tim Backshall, chief credit strategist at Credit Derivatives Research, sees a problem in any bailout plan. He says even if Congress approves a plan, banks may not start lending again, at least right away.
Mr. TIM BACKSHALL (Chief Credit Strategist, Credit Derivatives Research): I hate to be the doomsayer, but there really is no guarantee that this bailout will provide the credit that the economy needs so badly.
ZARROLI: Backshall points to companies like Constellation Energy, a utility with a relatively strong balance sheet. It's had trouble raising money in the bond market. Likewise, a subsidiary of the construction equipment giant Caterpillar recently had to pay higher than expected interest rates to raise money it needed. When even good companies have trouble getting the capital they need, it suggests there has been a deep erosion in confidence among companies. And though a bailout might begin to turn things around, it will take time to rebuild trust between lenders and borrowers. Jim Zarroli, NPR News, New York.
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