STEVE INSKEEP, Host:
If you are away from the news all week, you might glance at the stock markets now and think nothing happened. Many of the world's stocks and stock exchanges have recovered their massive losses from the start of the week. Yet, there's been a huge drama to get right back where we started. We're going to look more closely at what happened and why in this part of the program. The climax of that drama was Tuesday, ahead of the opening bell on Wall Street. CNBC had live coverage on the floor of the New York Stock Exchange.
A: A very intense floor. We're getting pushed around. These guys are assigned to do their job. We're in their territories. As the NASDAQ...
INSKEEP: Adam, who are they?
ADAM DAVIDSON: Now, of course, there are millions of investors all over the world. They have different goals, different attitudes, different perceptions. But we're going to kind of boil it down to what the investor was thinking and when our story starts last week, they - investor was a very anxious person.
INSKEEP: Now, you said, last week. Of course, we're not going to begin this drama on that climactic moment on Tuesday morning. We're going to find out what led up to it. I'm sure we can go back months or years if we needed to. But let's go back to Thursday, 8:30 in the morning. This is last Thursday, a week ago yesterday. What happened?
DAVIDSON: A lot had happened up until that point. For the previous months, we had been hearing more and more talk about a possible recession or severe economic slowdown in the U.S., maybe around the world. This was spurred by a crisis in housing. And at 8:30 in the morning, a week ago yesterday, last Thursday, there were housing numbers coming out and everybody in the investor community was watching those housing numbers.
INSKEEP: And what did they see?
DAVIDSON: They saw that home construction for December had fallen 14 percent. That is a huge one-day drop; the biggest drop in 16 years; they were terrified by that number. And then, immediately after 8:30, all eyes were on Fed Chairman Ben Bernanke. He was heading the Capitol Hill and he's the guy who might solve the crisis.
BEN BERNANKE: In the months ahead, we will be closely monitoring the inflation situation, particularly inflation expectations.
INSKEEP: Inflation?
DAVIDSON: Exactly. This is not what investors wanted to hear. Bernanke is talking about inflation, meaning he's cautious, meaning he's not going to pump money into the system. You're just talking about that phrase. He's going to be worried, and investors want money out there. He wants Bernanke - they want Bernanke to take aggressive, quick action. And so, they - this testimony of Bernanke made them even more nervous.
INSKEEP: And then it comes to be Friday morning, and President Bush decides to speak up.
GEORGE W: To keep our economy growing and creating jobs, Congress and the administration need to work to enact an economic growth package as soon as possible. As Congress considers such a plan, there are certain principles that must guide its deliberations.
INSKEEP: Adam Davidson?
DAVIDSON: President Bush goes on to explain that what he'd like to - that he wants to see a big stimulus package. But here's the thing. He doesn't explain exactly what's going to be in the stimulus package.
BERNANKE: Democrats and Republicans accusing each other of not taking care of the economy properly. This is going to take time and this economic stimulus package is going to get bogged down in White House, in congressional politics. And we're not going to get the relief we need.
INSKEEP: And Friday, as I recall, a week ago today, was a lousy day on Wall Street and the markets closed for the weekend. What happened next?
DAVIDSON: NPR's Anthony Kuhn reports from Beijing.
ANTHONY KUHN: In Mumbai, India, the Sensex index plummeted 7.4 percent, its second biggest drop ever in percentage terms.
INSKEEP: So we move from time zone to time zone. Asian markets dropped, then it comes to be Europe's turn. European markets dropped. But it's Monday, and American markets were closed. What was happening on that seemingly quiet day on Wall Street?
DAVIDSON: And so on this holiday Monday, we're told that Ben Bernanke had a planned trip to go to New York. He cancels his trip. He runs to the office. He calls all the people on the open market committee. These are the guys who have to agree on any major action by the Fed. This is highly unusual. The Fed usually works in slow, deliberative ways. And the Fed is never supposed to respond to these short-term market fluctuations. But the market is tanking; Bernanke is worried. He's getting these guys on the phone in an emergency phone call.
INSKEEP: And doing something that normally they'd never do.
DAVIDSON: What were you thinking when you woke up this morning?
PETER FEDERHOLTS: I thought it was going to be a pretty volatile day based on what happened overseas.
DAVIDSON: I mean, were you feeling afraid?
FEDERHOLTS: Not really afraid. I've been doing this a long time. But you're a little nervous on days like today because it's a kind of day when you can get yourself in trouble if you're not careful.
INSKEEP: No kidding, stocks dropped hundreds of points in the early minutes there.
DAVIDSON: Right. And the anxious investors wanted some kind of rate cut. They thought it would come next week. Out of the blue, Ben Bernanke comes with this three-quarter percent rate cut. This is huge. And it's huge that he did it in between meetings, not on a regularly scheduled meeting. And it showed the investors, Ben Bernanke is no longer talking about inflation, he's no longer taking this cautious mode. He is worried. He's just like them. And they like hearing that.
INSKEEP: Well now, Adam Davidson, let me just ask one final question to wrap this up. Because the markets have now recovered; things have come back. Are the fundamentals of the economy any different than the fundamentals that were worrying investors at the beginning of the week?
DAVIDSON: There are some really good signs for investors. Ben Bernanke is on their team. President Bush and the Democrats have reached - it seems have reached an agreement. Those are all good signs. But the main drumbeat, the bass note of this economy is negative. This is an economy clearly heading for a slowdown, maybe a recession. And there really isn't that much that the president or Bernanke or the investor can do about it.
INSKEEP: Adam, thanks very much.
DAVIDSON: Thank you.
INSKEEP: That's NPR's Adam Davidson taking us through a number of days when it seemed that everything changed, and then perhaps in the end not very much. And he'll continue to watch for later developments for us.