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Paulson Calls Global Markets Strained

MELISSA BLOCK, host:

From NPR News, this is All Things Considered, I'm Melissa Block. There were assurances today from Treasury Secretary Henry Paulson for the long term.

Mr. HENRY PAULSON (Treasury Secretary): I remain confident that we will work through this challenge, as we have always successfully worked through every economic challenge in the history of the United States. We are a strong and a wealthy nation with the resources to address the needs we face. I am confident that with the right policy response, time and effort, we will conquer these challenges as well.

BLOCK: This afternoon Paulson said it's too early to look for encouraging signs in the global credit markets but he said the government is working hard to implement the financial bailout plan passed last week. Earlier in the day, central bankers from the U.S., Canada and western Europe joined in a coordinated cut of their official lending rates. Still European stock markets tanked again. They ended down in the neighborhood of five to six percent and it was a volatile day for U.S. stock markets. Joining us to make some sense of it all is NPR's John Ydstie, and John, players in the market were asking for a rate cut, they got a pretty big one coordinated among six countries, a half a point. Still, the markets went down.

JOHN YDSTIE: That's right, there was initially a rally in Europe but that died quickly and stocks there ended down sharply as you said, and in the US, traders didn't seem quite what to know what to do. Stocks were volatile early in the day, up 180 points and down 250 points and they finally settled down about 200 points. Part of the problem is that in this kind of environment, traders end up reading everything in a negative way. They got the rate cut they wanted but then they started thinking, wow, it was pretty impressive. Central banks from the US, the EU, Canada, Sweden, Switzerland, all cutting rates together but half a point, most of them outside of their regularly scheduled meetings. The central bank statements signaled worries about the negative effects of the financial crisis on the real economy. So traders thought, well, I guess that means things are really going to be bad.

BLOCK: Be careful what you wish for. The fear here is global recession that is long and broad, deep.

YDSTIE: Right, exactly. And the effect of that recession on corporate profits is really difficult, so investors in the these companies drove their share prices lower. And as we said, ended sharply lower in Europe and 200 points down in the United States. US traders did have a little more time to digest things I think and the market bounced around all day as we said. But in the end, I think traders seemed to acknowledge the rate cut was a positive, the coordinated action was a good sign and the world's central bankers are at least on the same page and ready to address this crisis. That said, let's consider where we are right know, Melissa. The Dow has lost a third of its value since it peaked last October and it's down over a thousand points from a week ago, the day that the Senate passed the bailout bill, in fact about 1,500 points.

BLOCK: Which supposed to help stabilize things.

YDSTIE: Exactly.

BLOCK: Now, as we mentioned, Treasury Secretary Henry Paulson held a news conference this afternoon. He's saying it's too early to be looking for improvement in the credit markets. Patience is needed, I think was his phrase.

YDSTIE: Right. Yeah, it is early and here's the reason. So far, none of this bailout bill has been implemented. The problem in the credit market is people don't want to lend to each other because they're not confident they're going to be paid back, and banks are looking at all the other financial institutions and wondering how much of this bad mortgage debt they have on their books. So they're waiting for the government to start using the power it got in the bailout package to start buying up these bad mortgages and that hasn't happened yet.

BLOCK: And when does Secretary Paulson say that might or will happen?

YDSTIE: Well, not for a couple of weeks. But Paulson tried to calm investors by saying the government is working as fast as it can to get these auctions through which will buy up the troubled assets up and running and hopefully return some confidence and open up the credit markets.

BLOCK: More important to do it right than to do it fast.

YDSTIE: Exactly what he said, yes.

BLOCK: NPR's economics correspondent, John Ydstie. John, thanks very much.

YDSTIE: You're very welcome, Melissa. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

John Ydstie has covered the economy, Wall Street, and the Federal Reserve at NPR for nearly three decades. Over the years, NPR has also employed Ydstie's reporting skills to cover major stories like the aftermath of Sept. 11, Hurricane Katrina, the Jack Abramoff lobbying scandal, and the implementation of the Affordable Care Act. He was a lead reporter in NPR's coverage of the global financial crisis and the Great Recession, as well as the network's coverage of President Trump's economic policies. Ydstie has also been a guest host on the NPR news programs Morning Edition, All Things Considered, and Weekend Edition. Ydstie stepped back from full-time reporting in late 2018, but plans to continue to contribute to NPR through part-time assignments and work on special projects.
As special correspondent and guest host of NPR's news programs, Melissa Block brings her signature combination of warmth and incisive reporting. Her work over the decades has earned her journalism's highest honors, and has made her one of NPR's most familiar and beloved voices.