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Fallout: The Financial Crisis

Economies hammered worldwide

Marketplace Staff Oct 24, 2008
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Fallout: The Financial Crisis

Economies hammered worldwide

Marketplace Staff Oct 24, 2008
HTML EMBED:
COPY

TEXT OF INTERVIEW

Kai Ryssdal: So listen, I have to tell you, I thought we were in for another one of those 700-point down jobbies today when the opening bell rang. Marketplace’s Jeremy Hobson has been watching the markets for us in New York, and Jeremy, we have to start before the open here I guess and explain what happened overseas don’t we?


Jeremy Hobson: That’s right. There were already fears of a global recession, but there were a couple of particularly frightening pieces of data that emerged overnight. In South Korea growth hit a four-year low, there were fears that exports in Asia would be affected, the Nikkei in Japan falls by 9.5 percent. Then in the U.K. there’s word that the economy shrunk for the first time in 16 years; the FTSE in London falls by 5 percent. Then here in the U.S. there are layoff announcements, more of them — Goldman Sachs, Chrysler, Xerox — all saying they’re going to cut thousands of workers from their rolls. Now take that all into account in the midst of the general fear that’s been here for several weeks, and you get what happened today because in these times of fear these little pieces of information take on a much greater significance than they ordinarily would.

Ryssdal: Talk to me about that fear for a second. It is fear of what’s going on in the equities markets, which is to say volatility and generally unknown, or is it fear about the larger economy?

Hobson: Well certainly fear of what’s going on the equities markets is ratcheting this whole thing up a bit and since the financial crisis started fear has been much higher than it was before. But, investors I talked to today said people are starting to get her letters on how their mutual funds are performing. Investors are starting to pull out of these mutual funds, investors are pulling out of hedge funds. That means these funds have to come up with capital, which means they’ve got to sell other investments and that underlying mechanism of the market is also driving things down.

Ryssdal: One of the things that happened overnight before they opened here was the Dow futures, that is to say bets on which way the Dow is going to open, were pegged down — that is they were down 550 points and they had to stop trading in those. What does that mean and why is it important?

Hobson: Well that’s a big deal because it’s the first time it’s happened since 1997 in the Asian financial crisis. Back then it happened twice, once when the Dow was down 350 points and later as it fell by 550. Of course, 350 at this point would be like a nice day at the beach. But, the investors that I spoke with said that the fact that it didn’t reach those circuit breakers, as they’re called today, means that there’s going to be fear that it’s going to do it next week and we stay in this climate of fear.

Ryssdal: You mean they wanted a bigger loss today?

Hobson: Yeah, well, President Bush famously said that Wall Street got drunk. Well, my source — I hate to use this analogy — but they’re trying to throw up right now and until they do they’re going to be sort of moping around the apartment trying to find the way to the bathroom.

Ryssdal: Marketplace’s Jeremy Hobson, with a vision of the markets for us that I don’t know if we’re ready for. Thank you Jeremy.

Hobson: Thanks Kai.

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