Mounting Economic Anxieties Ripple Across the Globe

JIM LEHRER:

Another day of financial anxieties everywhere. Jeffrey Brown has our coverage tonight.

JEFFREY BROWN:

The day began with a worldwide effort to cut interest rates to spur growth and ease the credit crisis, but markets responded with little confidence about the situation. In fact, they fell again.

To discuss the latest, we're joined by Simon Johnson. He was chief economist at the International Monetary Fund until this past August. He's now a professor at the MIT Sloan School of Management and a senior fellow at the Peterson Institute for International Economics.

Liz Ann Sonders is chief investment strategist at Charles Schwab.

And Richard Thaler, professor of behavioral science and economics at the University of Chicago Graduate School of Business and the author of "Nudge: Improving Decisions About Health, Wealth, and Happiness."

Well, Liz Ann Sonders, I'll start with you. Today's effort by the Fed and other central bankers, how unusual was it? And what was it intended to do to turn things around?

LIZ ANN SONDERS, Charles Schwab:

Well, I decided to stop using the word "unprecedented," because I hear it constantly these days, so it's already becoming an overused word, but it is very rare to see this kind of coordinated action.

You know, in the last couple of days, there had been a building view and consensus that we were likely to see an inter-meeting rate cut by the U.S. Federal Reserve, but we felt all along that what would have been much more helpful would either be a coordinated set of rate cuts or at least a series of global central bank rate cuts, and that's, indeed, what we got.

The U.S. economy is actually more impacted by global interest rates, not just U.S. interest rates. So although clearly the market did not vote directionally up today with its move, we can't just look at single-day moves by the stock market. I think the decision by the global central banks was the right one.

JEFFREY BROWN:

Simon Johnson, all week we've been talking about Europe's problems and the need for coordinated action there. Was the willingness of central bankers in Europe to participate in this a helpful sign?

SIMON JOHNSON, MIT Sloan School of Management: Yes, it was a helpful sign. It wasn't really what you needed to break the panic, the mood of panic, let's say, which is pervasive. But it was a good sign the Europeans and the U.S. could get together in this way.

JEFFREY BROWN:

What about the action in Britain that we heard about with the banks?

SIMON JOHNSON:

Well, that's also pretty positive. The British announced a rather assertive bank nationalization recapitalization program. It's rather like a big Warren Buffett-type program for the entire banking sector.

It makes a lot of sense under the circumstances. It wasn't — again, it was a little bit like throwing pebbles into a stormy ocean, which is the phrase I'm hearing a lot these days. It's a little bit too late, a little bit too little, a little bit by themselves. The rest of the Europeans are not there yet with them.

So it hasn't had the kind of effect that they were hoping for.

JEFFREY BROWN:

Is that your explanation of why markets did not respond very well today?

SIMON JOHNSON:

Yes, clearly, there's an enormous, enormous storm out there. And what's really needed — the only thing that will turn around is decisive, coordinated action across the G-7 and maybe the G-7 plus some other countries, when and if they come in with the monetary policy, the fiscal policy, and the bank support, short term and medium term, they'll turn it around.

And they could turn it around really quickly. I think the mood can switch really fast. And you see inklings that this message is getting through to the policymakers. And the policymakers are trying to move in the right direction. So I'm a bit encouraged from today, even though overall it was a down day.