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An age of financial fragility

Marketplace Staff Sep 18, 2007
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An age of financial fragility

Marketplace Staff Sep 18, 2007
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TEXT OF INTERVIEW

Doug Krizner: This could be a heart pumping day for the financial markets. There are several key pieces of the puzzle coming together. To begin with, we’ll get clues about inflation from the report on August wholesale prices, and more clarity on the subprime mortgages mess in the earnings from investment bank Lehman Brothers. Oh yeah, and then there’s the Fed meeting on interest rates.

Let’s bring in Mark Cliffe, he is chief economist at ING Group in London. Mark, the consensus seems to be that the Fed will cut the overnight bank-lending rate by a quarter point. But there is a lot of talk about another cut in the discount rate.

Mark Cliffe: Yes, that’s a distinct possibility, that there will be a cut in the discount rate. Possibly a bigger cut in the discount rate than there is in the Federal funds rate.

Krizner: Now here in the States, we have seen the video images of customers, depositors at the British mortgage lender Northern Rock standing in line, waiting to get their money out of that institution. Give me a sense of what is going on with respect to credit turmoil in the U.K. right now.

Cliffe: Well, I think this is a very vivid illustration of how the problems in the financial system can rapidly become a real world problem. When you have people on the streets of Britain queuing outside of banks to withdraw money, this really takes us back to a distant age of financial fragility. And I think this is why the central banks have really got to do everything they can right now to get the wholesale markets up and running again, because this is the source of the problem.

Krizner: Now, is there a sense in Europe where they are blaming the Americans for kind of exporting the subprime crisis into Europe?

Cliffe: I think there’s certainly an element of that, but there’s also a lot of finger-pointing going on domestically as well. You know, how is it these banks could be so foolish as to rely on the wholesale markets in funding these mortgages? So the recriminations are becoming intense.

Krizner: Mark Cliffe is chief economist at ING in London. Thanks so much for talking with us.

Cliffe: Thank you.

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