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Cash makes people feel better

Stacks of hundred dollar bills

TEXT OF INTERVIEW

Scott Jagow: Throwing money at a problem isn't always the best solution, but in the financial markets, sometimes it's the only solution. Friday, the Federal Reserve poured $38 billion into the banking system and that helped calm down anxious investors. Today, the Bank of Japan and the European Central Bank injected billions more into their banks. We're joined now by our European correspondent Stephen Beard. Stephen, how are the markets looking over there this morning?

Stephen Beard: Well much steadier than on Friday. In early trading, London, Paris and Frankfurt were all up between 1 and 1.5 percent. It does look as if the central bank intervention that we saw on a very significant scale at the end of last week and again this morning in Japan has calmed investors' nerves.

Jagow: OK now Stephen can you explain to us exactly what this money that's being pumped into the system by the various central banks is accomplishing?

Beard: Well this has been a crisis in confidence between banks. Because the banks don't know the extent of each others' losses, they've been reluctant to lend to each other. So the central banks, first of all the European Central Bank and then followed by the Fed and then central banks around the world, made money available to the banks so that money and credit could start flowing around the system again.

Jagow: And what are the markets waiting on in the next few days?

Beard: One analyst told me this morning 'we're waiting for the next bit of bad news.' The big problem that last week's turmoil has exposed is the lack of transparency in this so-called collateralized debt obligation market. This is where thousands of mortgages are bundled together and sold on to investors. And because there is doubt about how much these are worth, banks simply do not know the scale of the losses out there.

Jagow: And we know how uncertainty affects investors: not good.

Beard: It certainly does.

Jagow: All right Stephen thanks.

Beard: OK Scott.

Jagow: Stephen Beard in London. Despite the big plunge on Thursday and part of Friday, Wall Street actually wound up with decent gains for the week. The Dow put on half a percent. The NASDAQ gained 1.3 percent. The S&P 500 rose 1.4 percent. Today, the dollar gained value against the Japanese yen. Oil is trading just under $72 a barrel this morning.

About the author

Stephen Beard is the European bureau chief and provides daily coverage of Europe’s business and economic developments for the entire Marketplace portfolio.

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