MADELEINE BRAND, host:
From the studios of NPR West, this is Day to Day. I'm Madeleine Brand.
ALEX COHEN, host:
And I'm Alex Cohen. Coming up, the education of Federal Reserve Chief Ben Bernanke, what the financial crisis has taught him about the limits of the free market.
BRAND: And the free market is getting another boost from the government. Today, Treasury Secretary Henry Paulson announced another $800 billion worth of assistance for the troubled financial markets. NPR's Chris Arnold is following this. And Chris, what did Paulson announce today?
CHRIS ARNOLD: Well, there's a couple of things going on, and one of them has to do with sort of a new front in the government's fight to save the economy, basically. And that has to do with consumer credit. You know credit, cards, home loans, student loans. Forty percent of that credit comes from something called the securitization market. It's like this giant pipeline that money normally flows through in the economy, and it's totally frozen.
Parts of the credit markets have been getting better. This one hasn't, and consumer spending is the biggest part of the economy. So you know, people who have good credit just - they have to be able to buy cars or washing machines and stuff, or the economy's just in really big trouble. And Treasury Secretary Paulson talked about this today.
Secretary HENRY PAULSON (Department of the Treasury): Millions of Americans cannot find affordable financing for their basic credit needs. This lack of affordable consumer credit undermines consumer spending, and as a result weakens our economy.
BRAND: So Chris, $800 billion, what is that money going to be spent on?
ARNOLD: All right, well, $200 billion of it is going to go to those banks and other companies that issue credit cards and make, you know, auto loans and that sort of stuff. And it's going to go in the form of loans, so the government's not handing money to these companies, but it's saying all right, we're going to give you a loan. And if you go under, we might lose it. But if you don't go under, you know, we hope to get paid back.
The hope is that that money will then flow into people's pockets, you know, when they go to buy a car and that kind of thing and they can actually get a loan. A lot of the other money is going to be spent propping up the housing market.
BRAND: And the housing market again in trouble with the latest news. The Case-Shiller Index was out today, not good news. And also, existing home sales out, not good, either. What's going on there?
ARNOLD: Yeah, home sales were down 17 percent from a year earlier. That's a record drop in the S&P Case-Shiller Index. Basically, there's been a lot of back and forth over whether the government is going to buy up a lot of this mortgage-related debt that's gone sour. And this original $700 billion bill that was supposed to do that, and then we heard no, no, no, that's not going to happen. We're going to do some other things.
And then today, the government came up and said well actually, we are going to buy up about $500 billion worth of mortgage securities. And they're targeting securities that are guaranteed by Fannie Mae and Freddie Mac, and those were those big mortgage companies that are sort of at the heart of the whole housing market in the United States.
And all sorts of other companies own those securities. You know, it could be Goldman Sachs or some sovereign wealth funds, but Fannie and Freddie are on the hook, and they guarantee those loans. And the key is that that's been pushing up interest rates on home loans, so the hope is here by buying up that bad debt it'll lower interest rates. That'll help everybody.
There's still nothing in here to deal with the whole foreclosure problem. And so, that's going to be something the government likely still has to deal with.
BRAND: NPR's Chris Arnold in Boston. Thank you.
ARNOLD: Thanks, Madeleine. Transcript provided by NPR, Copyright NPR.
