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Markets Start to Calm After Cash Injections

JOHN YDSTIE, host:

It's MORNING EDITION from NPR News. Steve Inskeep is on assignment. I'm John Ydstie.

RENEE MONTAGNE, host:

And I'm Renee Montagne.

We turn first this hour to the markets, which continued to be haunted worldwide by a credit crunch.

In Asia, there's no sign of the panic selling of last week. Still, investors in Asia and Europe seem to be taking a cue from the U.S. and remain cautious. Yesterday, the European Central Bank pumped more money into the financial system, even after injecting more than $200 billion last week in an effort to calm markets there.

And here in the U.S., the giant investment bank Goldman Sachs said it would put $3 billion into one of its troubled hedge funds. Overall, yesterday was a calm day on Wall Street, with none of the wild volatility and panicky selling that have characterized the markets lately.

NPR's Jim Zarroli reports.

JIM ZARROLI: For weeks, the markets have been grappling with the fallout from the subprime lending debacle. There has been a big increase in defaults and delinquencies that has dragged down some big mortgage lenders. And that has hurt some hedge funds, which tend to be major investors in mortgage-backed securities.

Yesterday the markets seemed to return to normal. There was a report from the Commerce Department that retail sales went up in July, and for once the good news wasn't drowned out by fear and anxiety.

Jim Paulson of Wells Capital Management says the fact that the markets even seem to pay attention to the news was encouraging.

Mr. JIM PAULSON (Wells Capital Management): A lot of what the market's had been trading on in the last couple of weeks has been rumor and nightmarish scenarios. And today it started back maybe - I hope it will continue to trade more in fundamental reports.

ZARROLI: Paulson says there has been some other good news in the markets that hasn't been wildly noted. Stock in smaller companies has done well. And banking stocks, which have been battered lately, are faring a bit better. The good news suggests that efforts by the world's central banks to reassure the markets may be having some impact. But neither Paulson nor anyone else is breathing too much easier.

James Bianco of Bianco Economic Research says there's still a lot of fear in the markets right now.

Mr. JAMES BIANCO (President, Bianco Economic Research): I think we're more in the eye of the hurricane right now. Whatever issues we had late last week were not resolved today. Yes, the stock market is showing a bit of a gain, but all of the concerns that we had about credit and with subprime are still there.

ZARROLI: One source of worry lately has been that more big hedge funds are about to fail. And there have been repeated rumors about Goldman Sachs and Merrill Lynch funds. Yesterday, Goldman tried to squelch those rumors. It said it would pump $3 billion into one of its most troubled funds, though it stopped short of calling the move a bail out. The move was a stark reminder of the uncertainties facing big investment banks. But it also underscored the fact that whatever their losses, the big banks still have plenty of resources to help them through their current troubles.

Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Jim Zarroli
Jim Zarroli is an NPR correspondent based in New York. He covers economics and business news.