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Stocks Hit Lowest Level Since 1997

LINDA WERTHEIMER, host:

Wall Street saw the expanded bailout of AIG as bad news. The stock market plunged yesterday, closing below 7,000 for the first time in 12 years. Today, stocks are up a little in early trading. NPR's Chris Arnold has been following the financial crisis. Chris, good morning.

CHRIS ARNOLD: Good morning, Linda.

WERTHEIMER: You'd think the additional money for AIG would be good news. What's going on here?

ARNOLD: Yeah, you would think that. It is another bailout for Wall Street. But what's happening here is that, first of all, that's just one of the things that drove the market down. But, you know, it looks like the government is propping up AIG, and that could avoid a potentially messy collapse there.

But investors also see AIG as a barometer for a lot of other companies. I mean, it was this big financial octopus of an insurance company with its arms in lots of different things. And so the idea is, well, if losses are bigger than we thought at AIG, they might be bigger at lots of other kinds of companies.

And that really is feeding this sort of uncertainty and fear that's out there in the market right now, that at least some of the financial problems are getting worse, not better, despite all the government intervention.

WERTHEIMER: You said there were other things pushing the market down yesterday. What things?

ARNOLD: Well, a major European bank, HSBC, said it needed to raise a lot more money to cover losses. So, there's another big financial firm that's looks like it's sinking deeper into trouble. And there was just more economic data. Construction spending data came out, and that was down again. Single family homebuilding in the U.S. has fallen for 35 straight months now. It's been down, down, down. There are fewer commercial projects getting built now, too, and that's on top of lots of other data.

Rising unemployment is maybe one of the biggest and scariest numbers. I mean, we're losing close to 700,000 jobs a month right now.

WERTHEIMER: What about the government bailouts? Any data on that? Are they making a difference?

ARNOLD: Sure. You know, there's a lot of moving parts. But economists say some things would be a lot worse if the government wasn't intervening. And one easy thing to look at is mortgage rates. And here, you know, if you've got good credit and, say, your house is $300,000 and you want to refinance and you have some equity in it, you can go out and get a 5 percent, thereabouts, 30-year, fixed-rate loan. And that's very good, and a lot of people are saving money that way.

Those rates would be a lot higher if the government wasn't intervening. So, some things are getting better. But what's happening now is that the crisis is evolving into what economists call a vicious cycle.

WERTHEIMER: And so you have the sense then that problems are spreading and getting harder to control?

ARNOLD: Right. And that basically means that, you know, this started with subprime loans and big losses for banks. And, you know, that lead to a pullback in lending and that hurt all kinds of different companies. And we've had layoffs. And now those layoffs mean less spending by consumers, people get nervous, consumer confidence falls. And that hurts more businesses. It means more layoffs.

And this cycle now is just really ripping the economy apart. And here, you know, there are some economists who say they're just really shocked by how quickly economies all over the world are slowing down. And one person I talked to said, you know, he's just never seen anything - he's an analysts, and he's never seen anything like this in his adult lifetime. And it's just very difficult to figure out where the bottom is.

WERTHEIMER: Very quickly, Chris: Lots of people are thinking maybe they should just get out of the stock market.

ARNOLD: Well, yeah, that's the sort of the human instinct to cut and run and stop the bleeding. But, you know, a lot of really well-respected financial experts say you've got to stay in this market. It's already fallen 50 percent. You know, the horse has left the barn. You know, selling stocks now, odds are you're just selling low and you're going to miss the rebound.

WERTHEIMER: NPR's Chris Arnold on yesterday's market plunge. Today in early trading, the Dow Jones Industrial Average is up a little. Transcript provided by NPR, Copyright NPR.

Chris Arnold
NPR correspondent Chris Arnold is based in Boston. His reports are heard regularly on NPR's award-winning newsmagazines Morning Edition, All Things Considered and Weekend Edition. He joined NPR in 1996 and was based in San Francisco before moving to Boston in 2001.
Linda Wertheimer
As NPR's senior national correspondent, Linda Wertheimer travels the country and the globe for NPR News, bringing her unique insights and wealth of experience to bear on the day's top news stories.
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