Several Factors Contribute To Dow's Decline

MICHELE NORRIS, host:

From NPR News, this is All Things Considered. I'm Michele Norris. First this hour, to the markets. If you want to know just how bad things were today, consider this. The price of gold took its biggest jump in nearly a decade. Investors were looking for safe havens. The government's 85-billion-dollar bailout of insurance giant AIG did nothing to reassure investors. The Dow Jones Industrials lost nearly 450 points. NPR's Jim Zarroli has been watching the markets, and he joins me now. Jim, it seems like Wall Street keeps losing ground. What's scaring off investors?

JIM ZARROLI: Well, there were several things today. There's something called the London Interbank Offered Rate. It's just like it sounds. It's the rate that banks in Britain charge when they loan each other money. And when banks are nervous about the economy, they tend to bid up the rate, and right now, it is very high. If it stays up, it's a big deal for the U.S. economy because it makes credit much more expensive. LIBOR is really widely used to set interest rates for credit cards and other forms of credit in this country. So stock market investors are nervous about that.

There was also a money market fund that lost a lot of money when the Lehman Brothers collapsed, and its shares fell below a dollar which, is the threshold past which investors get very nervous.

NORRIS: It was expected the government bailout of AIG might help calm the markets. Why didn't that happen?

ZARROLI: Well, it hasn't really worked. In fact, AIG was again down today, so were some of the other big financial stocks, too, Goldman Sachs and Morgan Stanley. Whenever the federal government has come out with one of these bailouts, you know, it seems to stabilize things for a while, but then investors start getting scared again.

NORRIS: People have had a little bit of time to think about this. What do people in the market think about the AIG bailout?

ZARROLI: I think a fair number of people think, you know, it was a necessary evil. You can't let a huge company like AIG fail. I think a lot of people in Wall Street dislike the idea of this kind of rescue, just on principle. I talked to one economist today. He said, all these bailouts have gotten people worried that the government is maybe overextended. You know, it keeps promising all this money.

One of the things that happened today was that the Treasury Department said it would sell Treasury bills on behalf of the Federal Reserve. It said the Fed needs the money to deal with the credit crunch. Now, this is the kind of thing that creates the perception that the government is running out of money, which isn't happening really, but people get scared. They pull their money out of stocks, and they put it in safer investments.

NORRIS: That's NPR's Jim Zarroli in New York. Thanks, Jim.

ZARROLI: You're welcome. Transcript provided by NPR, Copyright NPR.