STEVE INSKEEP, host:
The Senate vote could not come soon enough for investors. The Dow Jones Industrial Average gained almost 500 points yesterday, regaining most of what it lost in Monday's disaster. But nobody knows where the markets go next. NPR's Jim Zarroli has been covering this story day after day. Jim, good morning again.
JIM ZARROLI: Good morning, Steve.
INSKEEP: Does yesterday's trading mean that people have regained their confidence a little bit?
ZARROLI: Well, yeah. The stock market did rebound a lot. The market has been a pretty volatile place in general for a long time. I mean, we seem to have these triple-digit movements in the Dow almost every day. I actually think the Dow - the stock market is less important than what's happening in the credit markets, and they haven't really improved at all. The London Interbank Offered Rate, or LIBOR, is a measure of credit availability because a lot of lenders use it as a peg to set their interest rates, and it rose yesterday. And what that just says again is everybody's scared. Nobody wants to lend. Credit is really the oxygen that makes the economy thrive. And if companies can't borrow, they can't hire, they can't, you know, they put off investments, they cut back on expansions. So if we're ever going to get the economy moving again, we really have to turn around that negative sentiment in the credit markets.
INSKEEP: Well, Jim Zarroli, let's talk about the different solutions that Congress is talking about, because they're now adding things or discussing adding different things to this bill that failed in the House Monday and that's being tweaked for the Senate today. And let's talk about one item. Congress is talking about, and the presidential candidates have endorsed, the idea of increasing the amount of insurance on bank deposits. What difference would that make?
ZARROLI: Well, this is one of the pillars of the banking system in the United States. The Federal Deposit Insurance Corporation has a fund that insures peoples' deposits just like it sounds, up to $100,000. It's funded by the premiums paid by banks. Now the fund was set up during the Depression as a way of stopping bank runs. I think the idea was that if people knew their deposits were insured, you know, they wouldn't go rush to take their money out at the first sign of trouble. This has worked very well until now.
INSKEEP: Although raising it from 100,000 to 250,000 dollars, what difference does that make with that fundamental problem you see of the lenders being reluctant to loan?
ZARROLI: Well, it all goes back to the issue of confidence, you know, confidence in the economy, confidence in the markets. You might remember that when IndyMac collapsed this summer, you had people lining up to withdraw their funds. There were also big withdrawals at Washington Mutual right before it was seized by the government. So I think the head of the FDIC, Sheila Bair, wants to raise the insurance limit to $250,000 because she says it will just send a signal to people that their money is protected. Again the point is just to address this erosion of confidence that people feel in the banking system. It would also be popular with smaller banks who feel like it will protect them at a rough time.
INSKEEP: Well, let's talk about another measure that's a little complicated but seems to get at this notion of confidence and also just the way things look on the books. How are lawmakers considering changing the accounting rules for these financial institutions?
ZARROLI: Well, this is one of those issues that, you know, it's very complicated to explain but is very important to a lot of companies. And it has to do with the question that's very much on the minds of people right now, and that's this. Let's say a company owns an asset. It has to record the asset on its balance sheet. But what do you do if the value of the asset over time starts to fall? And there's essentially no market for the product. How do you know what it's worth?
INSKEEP: Which has basically been the deal with these mortgage-backed securities. They're worthless.
ZARROLI: Right, exactly. How do you know how much to value those mortgage-backed securities? Well, if you're a bank, that's a big problem, because if the value of your assets is falling and you have to start doing all these write-downs, you know, you can't lend as much because banks have capital requirements. So this is a really relevant issue for companies right now.
INSKEEP: So there's an effort to change the rules so the banks can just lend, lend, lend?
ZARROLI: Yeah. There's a big controversy right now about what to do. Banks basically want the Securities and Exchanges Commission to give companies more leeway in the way they value their assets. They say that, you know, writing down the value of assets right now just adds to volatility. Critics say this would just be disastrous for investors. They would never know what anything's worth.
INSKEEP: OK. Well, a lot of efforts to get things changed, but a lot of anxiety still. Jim, thanks very much.
ZARROLI: You're welcome.
INSKEEP: That's NPR's Jim Zarroli who's been keeping us abreast of the financial markets and the efforts to change them. Transcript provided by NPR, Copyright NPR.
