SCOTT SIMON, host:
This is Weekend Edition from NPR News. I'm Scott Simon. Coming up, the first bill that President Obama might sign. But first, President Obama and his new economic team have inherited a financial system in serious trouble. The stocks of many major banks have plummeted recently, and many seem in danger of collapse without more government help. At the same time, though, parts of the financial system are healing. NPR's Chris Arnold reports.
CHRIS ARNOLD: Outside of the historic inauguration of President Barack Obama, one of the more memorable, if less inspiring quotes of the past week came from Paul Volcker, the former chairman of the Federal Reserve. At a Senate hearing, he summed up the current financial state of the country.
(Soundbite of Senate hearing)
Mr. PAUL VOLCKER (Former Chairman, Federal Reserve): To put it starkly, we are in a serious recession with no end clearly in sight. The financial system is broken.
ARNOLD: We are in the midst of a colossally expensive debacle that economists say will dwarf the savings and loan mess of the 1980s. And there are still a lot of problems. But as the new administration takes over, there are some definite signs that parts of that financial system are on the mend.
Dr. NARIMAN BEHRAVESH (IHS Global Insight): There's no question that there's been quite a bit of improvement since, let's say, after the collapse of Lehman Brothers.
ARNOLD: Nariman Behravesh is the chief economist of IHS Global Insight. And he says that a few months ago, we were in an economist's nightmare. Basically the plumbing inside of the economy, the pipes that money flows through to reach big and small businesses and people wanting to get a loan for a house or a car, those pipes suddenly froze.
Dr. BEHRAVESH: And they froze up in a very, very problematic way. Essentially it's almost like the lending came to a complete grinding halt. And so, we've now seen a gradual thawing out of markets.
ARNOLD: One of the biggest reservoirs of money in the economy is the system of money market funds. Together these funds hold several trillion dollars that they lend out to banks and major companies so they can meet payroll and continue to function. That reservoir had frozen. David Glocke is a big gun in the world of money market funds. He manages the giant mutual fund company Vanguard's money funds.
Mr. DAVID GLOCKE (Bond Fund Manager, Vanguard): We're really getting more back to normal now in the money market area. There is a degree of calm being restored now to the marketplace.
ARNOLD: Glocke says a few months ago, if he wanted to sell, say a short-term bank CD that he had purchased, he had a lot of trouble. There were no buyers, no market, and that was stopping money funds from investing any more money into banks or other companies. But now, the government has intervened with a system of guarantees and that's broken up the ice.
Mr. GLOCKE: Liquidity has been restored to the marketplace now. I can go back in and I can sell securities to dealers on the street. I'm more - certainly far more optimistic as a result of that in the money market space.
ARNOLD: Things are also better in the mortgage market. The government has pushed interest rates to historic lows, which is putting a lot more money into many Americans' pockets as they refinance their home loans. Still, it's hard for many businesses and people who don't have the very best credit ratings to get loans. Arne Sorenson is the chief financial officer of the hotel company Marriott International.
Mr. ARNE SORENSON (Chief Financial Officer, Marriott International): There are clear signs of improvement. I think not withstanding that, there still is an abhorrence of risk.
ARNOLD: Sorenson says it's still almost impossible to get funding for new hotels, even for low-risk projects that he says make sense right now. He says that banks just aren't lending enough money. And that hurts the economy. At Marriot alone...
Mr. SORENSON: There are thousands of jobs that are not being created that normally would be created. And that's entirely because of the lack of credit available to fund new hotel projects.
ARNOLD: So while money is flowing through parts of the financial system a lot better, the banks themselves remain in serious and deepening trouble. Despite all the government support, Citigroup, Bank of America, and others recently reported that they're still losing billions. That's rattled investors and sent their stocks plunging. So when you just look at the banks...
Mr. SORENSON: I think this crisis has taken a turn for the worse.
ARNOLD: Economist Nariman Behravesh says we've entered a new phase in the crisis, where the economy is getting caught in a downward spiral.
Dr. BEHRAVESH: What's going on here is that up until a few weeks ago, it was as if the financial sector and the housing sector were dragging down the economy. Now it seems to be the other way around, it's the economy dragging down housing and the financial sector.
ARNOLD: Now millions of Americans are losing their jobs. More credit card debt and all kinds of other loans are going bad. That's magnifying the banks' losses. So right now, another massive bailout is being considered in Washington. Chris Arnold, NPR News.