Tue, Sep 18, 2001 page24

• World Business: Voices urge Wall St to help avert sell-off

  INVESTOR PSYCHOLOGY Government officials said they sent word to investment firms that they would frown on practices that might contribute to market volatility

  • NY TIMES NEWS SERVICE
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  An informal coalition of government and business implored the leaders of Wall Street on Sunday to do what they could as a patriotic duty to keep the stock markets from tumbling when they reopened yesterday morning.

  Returning to the White House from Camp David on Sunday afternoon, President Bush said, "No question about it, this incident affected our economy." But he also expressed "great faith" in the nation's economic and financial resiliency.

  

  An informal coalition of government and business leaders urged investors on Sunday to do what they could to keep the markets from tumbling when they reopen yesterday. On Sunday in Times Square, the NASDAQ Market Site ticker announces it's reopening.

  PHOTO: NY TIMES

  "The markets open tomorrow, people go back to work, and we'll show the world," Bush said.

  The Federal Reserve Board and its counterparts in Europe and Japan chose not to take any action in advance of Wall Street's attempt to return to normal after the devastation of Tuesday. Japanese stocks fell sharply early yesterday.

  But with much riding on the stock market's opening, both psychologically and financially, officials from the administration, the Fed, and the Securities and Exchange Commission mounted a campaign to bolster investor and consumer confidence and win cooperation from top executives of the nation's major banking and investment companies.

  They made clear that the government expects the industry to put the need for a smooth opening in the stock market ahead of short-term trading strategies or other business decisions that might drive share prices down.

  William J. McDonough, the president of the Federal Reserve Bank of New York, said he had spoken in the past few days to financial executives including William B. Harrison, the president of JP Morgan Chase; Philip Purcell, the chairman of Morgan Stanley Dean Witter; John Mack, the chief executive of Credit Suisse First Boston, and David Komansky, the chairman of Merrill Lynch.

  Patriotic crusade

  McDonough said in an interview on Sunday that his message to the banking and investment industries was that "the whole financial sector realize that tomorrow is a challenge and that it is important that we do well tomorrow."

  He told them, he said, that "they should be taking care of all the needs of their customers" and "should be making wise credit decisions."

  At the same time, everyone from Vice President Dick Cheney to commentators and ministers in the pulpit sought to turn helping the market get restarted into something of a patriotic crusade, and maybe even good business.

  In an interview with CBS' "60 Minutes" on Sunday night, Warren Buffett, one of the nation's best-known and most successful in-vestors, said that he "won't be selling anything" when the market opens and that if prices fall enough, "there's some things I might buy."

  He was joined on "60 Minutes" by Robert Rubin, the former Treasury secretary who is now with Citigroup, and Jack Welch, who recently retired as chairman of General Electric Co, both of whom offered similar messages of reassurance to investors.

  Blow to confidence

  The Fed declined to comment on the schedule of its chairman, Alan Greenspan. But underscoring the focus that policy-makers have put on getting the stock market operating again as a step toward re-establishing economic normalcy, Treasury Secretary Paul O'Neill left Washington on Sunday after a National Security Council meeting and traveled to New York, where he planned to be on the floor of the New York Stock Exchange at 9:30 yesterday morning, when it intends to open.

  The economy in the US appeared to be on the brink of recession even before the attacks on the World Trade Center and the Pentagon. Many economists said the blow to consumer and investor confidence and the slowdown in economic activity caused by the disruptions to air travel and ordinary commerce are likely to be enough to push it over the edge.

  With the global economy also decelerating, economists have been particularly concerned that a sharp and sustained fall in stock prices in the US and abroad could set off a financial crisis that would make the overall economic outlook even dimmer.

  There were rumors throughout the day -- driven as much by hope among investors as by concrete evidence -- that the Federal Reserve might cut interest rates in the next few days, perhaps in conjunction with the central banks in Japan and Europe. Rate cuts tend to provide the markets with a psychological lift and to encourage investors to move money from bonds into stocks.

  Cheney said the nation "quite possibly" faces war and recession simultaneously. But he said the economy should rebound quickly, and he suggested that individuals could help by continuing to work, spend and invest as normally as possible.

  Speaking on NBC's "Meet the Press," Cheney said he hoped that "the American people would, in effect, stick their thumb in the eye of the terrorists and say that they've got great confidence in the country, great confidence in our economy, and not let what's happened here in any way throw off their normal level of economic activity."

  The SEC said last week that it would waive certain regulations to allow companies and executives to help prop up the prices of their shares. Other government officials said they had sent word to investment firms that they would frown on practices that might contribute to volatility in the markets, including short selling, or betting that a stock will lose value.

  A senior financial regulator said over the weekend that the SEC had concluded that it would be inappropriate for the commission to tell the investment firms it regulates what to do when the market reopens. But the official said the commission was heartened by the spread of calls for people to buy stock yesterday, or at least to avoid selling.

  Sparked by newspaper columns and Web sites on the Internet, there has been widespread talk of fighting back by putting or keeping money in the stock market yesterday.

  Bruce Bartlett, a conservative economist and commentator, in a column in The New York Post on Saturday, urged individuals to "vote for America by putting your money into its financial and industrial core."

  At All Souls Unitarian Church in Manhattan on Sunday, the minister, Galen Guengerich, told the congregation: "Buy a new book. Buy some stocks."

  After a long pause he added, "Tomorrow morning," eliciting a wave of applause and laughter.

  Longest expansion on record

  As it confronts the likelihood of a costly war against terrorism and a period of economic peril, the US can draw on its legacy from the prosperity of recent years, including a substantial federal budget surplus and the ability to slash interest rates.

  Economists said that after more than 10 years of uninterrupted economic growth -- the longest expansion on record -- the nation has the resources to pay for military action, reconstruction and a dose of stimulus to the economy without taking on levels of debt that would be troublesome in the short run.

  With inflation low, the Fed has the flexibility to give the economy and the markets an immediate boost by reducing interest rates further, even after seven rate cuts already this year.

  Having been squeezed for two decades by intense global competition, American industry is generally lean and nimble, and the banking system is healthy.

  "We have a surplus in our budget and room to do near-term stimulus," said Alice Rivlin, a former vice chairwoman of the Federal Reserve who also directed the Congressional Budget Office.

  "We have a strong banking system that's coming off a long period of doing very well," she said. "And we have monetary policy that's been aggressive but still has a lot of maneuvering room. We have a very resilient economy."

  Given all the uncertainties about military action and critical economic factors like oil prices, the outlook at this point is foggy. But economists said they expect at least a quarter or two in which the economy is weaker than it looked as if it would be before Tuesday.
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