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Markets take a real dive

A trader puts his hand on his head on the floor of the New York Stock Exchange -- October 9, 2008

TEXT OF INTERVIEW

Stacey Vanek-Smith: All of these massive losses are all the more alarming because in the last couple of weeks, governments around the globe have been pulling out all the stops to try and turn the situation around. Thought we'd check in with economist Andrew Hilton. Andrew, markets all over the world are crashing in spite of all of this action from the government.

Andrew Hilton: Well possibly because of the action from the government, because it always has seemed to me that this is not the job of the government to stir up panic. But unfortunately by standing in front of the markets and saying the sky is falling and you must sign up for this or the end of the world will come, I think the Bush Administration and governments around the world have increased the sense of panic rather than reduced it.

Vanek-Smith: Both the Footsie and the Dow Jones Industrial Average are at five-year lows. What does this mean for investors and for economies in both countries?

Hilton: Well I think it's pretty devastating. It's hard to imagine anybody on either side of the pond -- unless they actually working for the government these days -- making any kind of major consumer purchases. And we haven't even seen the impact of that -- the second-round impact on the real economy is only beginning.

Vanek-Smith: Do you think it would have been better for the markets if the government had let some of these big banks fail?

Hilton: Well I think it learned its lesson with Lehman Brothers -- I don't think it's intended to let Lehman Brothers go. And when it did let Lehman Brothers go, it discovered just how complicated a bank like Lehman is. And I think after that, the government took a deep breath and said we're not going to do that again.

Vanek-Smith: Andrew Hilton is the director of the Center for the Study of Financial Innovation. Andrew, thank you so much for speaking with us.

Hilton: My pleasure.

About the author

Stacey Vanek Smith is a senior reporter for Marketplace, where she covers banking, consumer finance, housing and advertising.

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