Fallout: The Financial Crisis

Central banks pump billions into system

John Dimsdale Sep 18, 2008
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Fallout: The Financial Crisis

Central banks pump billions into system

John Dimsdale Sep 18, 2008
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TEXT OF STORY

KAI RYSSDAL: What we thought was going to be the day’s lede story when we got up this morning has almost been buried by the rush of events. The U.S. Fed and central banks around the world got together overnight to coordinate their efforts to prop up financial markets.

Six central banks — from the U.S. to Japan to Switzerland — added another $180 billion into the global banking system. It’s the same thing they’ve been doing for the past year-and-a-half — trying to get banks to start lending money again. Now, though, given what’s been happening this week, they really want them to open up those purse strings.

Our Washington Bureau Chief John Dimsdale reports.


JOHN DIMSDALE: The idea is that commercial banks and lenders will use this central bank money to cover their short term cash needs for things like a big withdrawal or a credit transaction. Most of the time, that kind of everyday activity is done with quick, private, overnight loans between banks. But now, there’s no confidence such loans will be repaid.

Former Federal Reserve staff member David Jones called the coordinated, worldwide injection of government cash “long overdue.”

DAVID JONES: The key really was that we did have at long last all of the major central banks in the world combining in a way that injected cash globally to the markets. Hopefully to symbolize that the central banks are there as a backstop to these extremely nervous and unsettled financial markets.

And the signal from this global coordination is that there’s more money to come, if necessary, says Carl Weinberg with High Frequency Economics.

CARL WEINBERG: The solidarity of the central banks in moving forward together on this is a statement to the markets that if this injection is inadequate, all the central banks stand prepared to do whatever is necessary to keep the banking system moving forward.

The Federal Reserve has been making extra lines of credit available to U.S. lenders since last spring, without much benefit to financial confidence. But now that global central banks are working together, Carl Weinberg expects to see quick results.

WEINBERG: It could take a few days. I don’t think this will drag out for a long period of time and I’m hoping that the confidence factor will return rather quickly.

Repairing the damage from this financial crisis will take a lot longer, he says.

In Washington I’m John Dimsdale for Marketplace.

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