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What lessons from 2008 financial crisis can be applied to coronavirus economic fallout?

Financial panic rocked world markets Monday. All three major U.S. stock indices were down over 10 percent, despite extraordinary action Sunday by the Federal Reserve to cut a key interest rate to zero. But the painful economic implications of the COVID-19 pandemic extend far beyond Wall Street. John Yang talks to David Wessel of the Brookings Institution about the need for fiscal stimulus.

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  • Judy Woodruff:

    And, as we have been mentioning, a financial panic rocked world markets again today.

    On Wall Street, the Dow Jones industrial average burned through nearly 3,000 points, nearly 13 percent, to close at 20188. It's down nearly one-third of its value since peaking in mid-February. The Nasdaq fell 970 points, and the S&P 500 slumped 325 points.

    John Yang looks now at the economic pain that is being inflicted by the widening coronavirus.

  • John Yang:

    Judy, today's market plunge followed extraordinary action from the Fed yesterday. It cut a key interest rate to zero. The move was aimed at shoring up investor confidence, as restaurants are closing, sporting events are canceled, and people are being urged to stay home.

    David Wessel is director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution.

    David, thanks for joining us.

    How big a deal is what the Fed did yesterday?

  • David Wessel:

    It was a pretty big deal, meeting on a Sunday, ahead of schedule.

    The Fed basically said, we are going to use almost all the monetary ammunition we have. They cut interest rates, as you said. They restarted the process of bond buying, quantitative easing.

    And they said that, we are making it as easy as possible for banks to borrow from the Fed, so they can keep lending. So it was a very big deal.

  • John Yang:

    And, as you say, it's just about everything the Fed can do in terms of monetary policy.

    So, as the president says we may be going into a recession, what's left? What can be done?

  • David Wessel:

    Well, I think it's clear we're going into a recession. The only question is, how long will it last? And that's really dependent on the coronavirus.

    The Fed has a few emergency powers it hasn't used yet, the ones it used during the 2008 financial crisis, to lend under circumstances determined to be exigent and unusual.

    But, really, the game is now up to fiscal policy. We need a big package from Congress, tax cuts and spending increases, to replace the demand that has evaporated as people are told not to go out and people are losing their jobs by the minute.

  • John Yang:

    We have not-so-distant history with fiscal policy in times of economic turmoil, the financial crisis, at the end of the Bush administration, beginning of the Obama administration.

    What lessons did we learn then that they ought to be keeping in mind now?

  • David Wessel:


    There are some lessons to learn, I think. The situation is different. This was not caused by some imbalance in the financial system or the housing thing. It was really a shock from outside, the virus.

    But one of the key lessons that we learned during the crisis is, it's important to do a lot and do it soon. Waiting to see how things develop at a time like this is a mistake. And although the government has a very big debt, which they do, they're also able to borrow at very, very low interest rates.

    So I think, most economists — and I have been talking to a number of people on Wall Street today — say it's time for Congress and the president to borrow some money, do a big fiscal stimulus, and get on with it.

    And they're worried that the political dysfunction in Washington may slow it down.

  • John Yang:

    Yes, talk about that.

    I mean, the — haggling over the details, what goes into this package, paid sick leave, bailing out — or I shouldn't say building out, but the financial help for airlines, cruise ship industry…

  • David Wessel:

    Well, there is this smaller package that the House passed that seems to be having trouble getting through the Senate that would basically repair some of the weakness in the safety net.

    But I think the next step is going to be hundreds of billions of dollars. Some will go to industries like airlines, hotels, restaurants, businesses, so that they will be able to stay alive, and they will be able to function when this ends.

    But I think, eventually, some of it will go to individual households. After all, a lot of people are not going to see as much income because they don't work as many hours. They will be laid off. Some of them will get unemployment. Some won't.

    And it's not — this is something really unusual. We haven't seen such an abrupt end of consumption, people told not to shop. Think how different this is from 9/11, when President Bush said the patriotic thing was to go out and shop.

    Now we're being told the patriotic thing is to stay home. Netflix and Amazon will make some money, but a lot of other people are going to be in trouble.

  • John Yang:

    David Wessel, the director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, thank you very much.

  • David Wessel:

    You're welcome.

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