Fallout: The Financial Crisis

Markets up after central banks action

Marketplace Staff Sep 18, 2008
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Fallout: The Financial Crisis

Markets up after central banks action

Marketplace Staff Sep 18, 2008
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COPY

TEXT OF STORY

Stacey Vanek-Smith: What a week. Lehman Brothers went belly-up, Merrill Lynch was bought up at a bargain-basement price and AIG, the biggest insurer on the planet, became the property of Uncle Sam. And now Washington Mutual is desperately seeking a buyer. The country’s biggest savings and loan says it can’t raise the money it needs to stay afloat.

That, of course, is the big problem right now. Borrowing costs for U.S. companies have skyrocketed And businesses can’t get cash. Today the world’s main central banks banded together to try to solve that problem. They introduced emergency measures to inject billions of dollars into the global markets.

The Bank of Japan is making about $60 billion available. The European Central Bank offered up $40 billion in overnight funds. Ralph Atkins is with the Financial Times. Ralph, this is a pretty massive action.

Ralph Atkins: Yes, it’s another evolution in all the weapons they’ve been using to try and solve this financial market crisis. Basically, what’s happened is that the Federal Reserve over there has agreed to pump an extra $180 billion into financial markets around the world. It’s being divvied up among various banks, the Bank of Canada, as well. But the European Central Bank and the Bank of England and the Swiss National Bank in Europe are going to be pumping extra dollars into markets to try and free things up a bit, calm some of the tensions.

Vanek-Smith: How will this infusion of cash help global economies?

Atkins: Well, I think, immediately it’s about helping financial markets by helping banks that need the dollars because of all the difficulties that have been happening over on Wall Street and all the problems they have gotten into following the collapse of Lehman and the problems at AIG and so on. So, it’s about helping financial markets. The effects on economies, on the U.S. economy and even the European economies will take much longer to come through. I mean, obviously, there’s the confidence effects, there’s the problems that ordinary companies might have in getting money. But I think it’s going to take quite some time before we know quite what all that impact is going to amount to.

Vanek-Smith: And it seems that investors are responding pretty positively.

Atkins: Yes, that’s true. Yes, we’ve certainly seen it bounce back in financial markets today. I have to say this was not a big surprise. I think there was sort of an expectation that central banks would have to do something more after all the extraordinary events we’ve seen in New York and over there generally in recent days. So it wasn’t a huge surprise that they took this action. I think investors are still going to be worried about, very much about what this all means for the world economy. There’s all sorts of uncertainties about the world economy that I just mentioned. We really don’t know what’s going to happen to the U.S. economy. And what happens to the U.S. economy is, of course, crucial to the economy of Germany, where I’m sitting at the moment, which is very dependent on world demand for its products to grow.

Vanek-Smith: Ralph Atkins is the Bureau Chief for the Financial Times in Frankfurt. Ralph, thank you for speaking with us.

Atkins: My pleasure.

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