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Fed, Central Banks Try To Stem Financial Losses

STEVE INSKEEP, Host:

We're going to hear more about all these developments now from two NPR correspondents who are covering the financial crisis, in two of the world's financial capitals. We begin with NPR's Jim Zarroli who's following the Fed's moves from New York. Jim, good morning.

JIM ZARROLI: Good morning, Steve.

INSKEEP: So, what is the Fed doing, and why now?

ZARROLI: And it decided to do this now, rather than wait for its next meeting at the end of the month, which basically just underscores the real seriousness of the economic situation right now. The Fed issue...

INSKEEP: This makes Fed a little bit cheaper, I guess we should say, this makes it easier for banks to borrow at a lower interest rate, which makes it easier for them to lend, and make money out of this. Is that correct?

ZARROLI: That's right, and the hope is that that eventually will filter down to the broader economy, and sort of unfreeze the credit markets, which are just completely stuck right now.

INSKEEP: Is this something that Wall Street was clamoring for after days and days of brutal losses on the stock market?

ZARROLI: He was pretty much just signaling that a rate cut was coming. I don't know that people expected it would come this morning, but that's what we have.

INSKEEP: We're talking about the Federal Reserve's decision to cut interest rates today by half a percentage point. Jim Zarroli, stay with us as we bring another voice into the conversation. NPR's Rob Gifford is in another financial capital, London, and that's important, because European authorities - the European Central Bank, as well as the Bank of England, joined by the Swiss and the Swedes, have all also cut interest rates in what appears to be a coordinated move. Rob, what makes the Europeans move now?

ROB GIFFORD: They've done it together, because it's reached the point in Britain here, where really just putting out the fires as they come up was being seen. That sort of approach to this problem was really at an end. They needed to set up a big fire break if you like, so they've put forward this rescue package of basically partially nationalizing the British banks, at the same time as announcing this half-a-percent interest-rate cut.

INSKEEP: I want to figure out who's pushing and who's pulling here. Is it your sense, Rob Gifford, that European bankers are following the lead of Ben Bernanke, the Fed chairman of the United States?

GIFFORD: But as I say, the situation had got so dire here, and in fact yesterday was a crucial day, really, because some of the British banks - the stocks in British banks on the FTSE 100 Index here tanked so badly, down about 40 percent in one day. It reached the point by the end of yesterday where it was clear, really, a major action was needed, so that's why they've launched this rescue package, and cut the rate.

INSKEEP: Well, Jim Zarroli, isn't one of the questions that has to be asked is whether Ben Bernanke has the confidence of the financial markets? Do they have confidence that the Fed has the power, and the means, and the knowledge to fix what's wrong here?

ZARROLI: It also prevents something else, which is I think probably a lesser reason, but there's a capital-flight problem. When the United States cuts interest rates, and the other central banks don't, it just encourages money to go from the United States overseas. So it kind of undercuts the value of an interest-rate cut. But when everybody does it together, it sort of cancels that out.

INSKEEP: Is there any concern, Rob Gifford, that even all the central banks in the industrialized countries in the world, might not be big enough to stop this panic?

GIFFORD: I mean, it's big, but these are crazy times, and we don't even know if this package is going to be big enough and strong enough, along with the interest-rate cut, along with this amazing, international coordination to really staunch the flow.

INSKEEP: Tell me about partially nationalizing British banks then, Rob. How is that different from the bailout in the United States?

GIFFORD: And the third thing that the British government has done, is to expand what it calls its special liquidity scheme, which facilitates short-term borrowing. And they've put out $350 billion to make that available on that scheme. So, it's really a massive package. It is different from how the U.S. did it last week. I suppose it is a more European model. The Swedes were very successful doing this in the 1990s, when they had their own...

INSKEEP: OK.

GIFFORD: Financial meltdown, and taxpayers' money was repaid within several years.

INSKEEP: OK. Thanks very much. Rob Gifford is in London. Appreciate it.

GIFFORD: Thank you very much, Steve.

INSKEEP: And NPR's Jim Zarroli is covering the crisis from New York. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Jim Zarroli is an NPR correspondent based in New York. He covers economics and business news.
Rob Gifford
Rob Gifford is the NPR foreign correspondent based in Shanghai.
Steve Inskeep is a host of NPR's Morning Edition, as well as NPR's morning news podcast Up First.