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How Secretary Mnuchin Is Trying To Reassure Investors

ARI SHAPIRO, HOST:

The Trump administration is taking steps meant to inspire confidence in the markets, but the approach seems to be backfiring. Yesterday Treasury Secretary Steven Mnuchin called the heads of the six biggest U.S. banks and then said they have enough money to lend, which made experts wonder whether that's a concern. Today Mnuchin met with an advisory group known as the Plunge Protection Team, and then the Dow fell nearly 3 percent. It doesn't help that we're in the middle of a partial government shutdown and President Trump is attacking the head of the Federal Reserve.

Binyamin Appelbaum is covering this for The New York Times and joins us now. Welcome.

BINYAMIN APPELBAUM: Thank you.

SHAPIRO: Why is the treasury secretary taking all of these unusual steps - calling the heads of the bank, convening the Working Group on Financial Markets or Plunge Protection Team? Why is he doing all of this now?

APPELBAUM: President Trump really hedged his political fortunes to the rise of the stock market during the first 18 months of his term. And as the market has fallen in recent months, he has become increasingly upset and has put a huge amount of pressure on his advisers, particularly Secretary Mnuchin, to reverse the decline of the stock market. So Secretary Mnuchin over the weekend decided he had a plan for doing that. And he reached out to the banks, seeking reassurance everything was going OK, reached out to financial regulators, seeking assurance they weren't seeing anything wrong and then went out before the public and said, hey, we don't have a problem here.

SHAPIRO: Which of course made the public wonder whether there was actually a problem there.

APPELBAUM: That's exactly right. People didn't know they were supposed to be worried about liquidity until Secretary Mnuchin announced on Sunday that everything was fine. It's sort of the equivalent of a banker standing on the front steps of their institution, waving their arms and shouting, we have lots of money in the vaults; don't worry about anything.

SHAPIRO: (Laughter) And then at the same time, President Trump is attacking the head of the Federal Reserve, Jerome Powell. There have been reports that Trump has thought about firing Powell. What impact is that having?

APPELBAUM: This is not helping to reassure Wall Street. Investors, even if they disagree with the Fed's recent decisions to raise interest rates, really value the idea of an independent institution. They want monetary policy to be independent of politicians. That's the reason the Fed was created. The idea of the president increasingly inserting himself or trying to insert himself into Fed decision-making is deeply unnerving to many people on Wall Street.

SHAPIRO: You know, so much of what makes something economically strong is intangible like faith and confidence. Is there an actual economic problem here, or is Washington threatening to create one just by undermining faith and confidence?

APPELBAUM: So all of the economic data right now looks really good actually. Unemployment is at the lowest levels in half a century. Inflation is under control. Consumers have been spending money. But as you said, we know that the economy can turn on sentiment, what John Maynard Keynes famously called animal spirits. If people get upset, worried, scared, that can in and of itself be enough to drive the economy downward, potentially into a recession. So these fears and anxieties, even if they're not about anything real, can become something real.

SHAPIRO: And if they do become something real, do the titans of Wall Street, the heads of the banks and so on trust the leaders in the Trump administration to lead them through it?

APPELBAUM: It's a very interesting question because we've seen much of the generation that dealt with the last financial crisis leave the government not just at the level of presidential appointments but below that. The career staffs at institutions like the Fed and the Treasury have begun to turn over pretty substantially, so a lot of the people who have any experience dealing with a financial crisis have left. And I think there is reason to wonder how well the new guard would deal with a real crisis.

SHAPIRO: That's Binyamin Appelbaum, Washington correspondent for The New York Times. Thanks for joining us today.

APPELBAUM: My pleasure. Transcript provided by NPR, Copyright NPR.