Despite an unprecedented move taken by U.S. and foreign financial officials Wednesday, little was accomplished to stem the crisis reigning on Wall Street.
The Federal Reserve System, the European Central Bank, the Bank of England and the central banks of Canada and Sweden all cut their primary lending rates by a half of a percentage point, but the Dow Jones industrial average still lost 189 points, a 2 percent drop.
It marked the sixth straight day of losses for the Dow.
According to a Federal Reserve press release, the move was taken in hopes of boosting the economy and making it easier for people to borrow money. It is believed to be the first time the Federal Reserve had coordinated such a move with foreign central banks.
David Denslow, UF economics professor, said he was not surprised by the cooperative action taken worldwide.
However, he called the rate cut a symbolic act that will not have a substantial effect because banks are no longer loaning money to each other.
Financial markets had made the move necessary, he said, and statements by leaders of the foreign banks signaled the move was coming.
Denslow equated the cut to a change in the price set for corn. If the price of corn is cut from $15 to $10, but no one is buying corn, it won't make any difference, he said.
"The problem is not interest rates. It's credit crunch," Denslow said. "This move will probably almost have zero effect."
Naimish Patel, president of the UF Student Investment Club, said the rate cut sparked conversation between several of his organization's members Wednesday. He feels the move shows that it is not just the U.S. economy in trouble, and the root of the problem is still uncertain.
"I think we're headed to a global recession," Patel said. "The way to get out of this is banks are really going to have to take a risk and make money as cheap as they can."
Making money cheaper, he said, allows banks to borrow more and then pass that on by lending more to businesses.
Denslow compared the country's credit problems to a similar situation in Japan during the 1990s. He said Japan kept its target increase rate at zero, which did no good. The economy began to rebuild only after the flow of money increased.
The right answer to fix the economy is not apparent, he said.
"You don't know. You don't know how bad it is," Denslow said. "The things they're doing in terms of the troubled asset rescue plan (the recent $700 billion bailout) - that's the right stuff to do. They should be buying up troubled assets. They should be buying equity in the banks and other financial institutions."
Patel said he believes government spending will have to increase on top of all these initiatives to jump-start the economy.
"It's kind of the opposite of what you should do," Patel said. "You can't take in less money, then spend more money at the same time. We're at a point where somehow that needs to happen."
