[Congressional Record Volume 141, Number 102 (Wednesday, June 21, 1995)]
[Senate]
[Page S8834]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                           A CONSUMER'S GUIDE

 Mr. SIMON. Mr. President, there is a great deal of discussion 
about the loan guarantee for Mexico, most of it negative because that 
is where public opinion is today.
  Any careful study of the merits of the issue suggest that the safer 
gamble between doing nothing or having a $40 billion loan guarantee is 
the $40 billion loan guarantee. I do not like the option, but that is 
the reality we face.
  We are being asked to cosign a note, but there is some security with 
a note, and if we do not go ahead, the consequences in terms of illegal 
immigration, loss of export markets and, simply, the suffering that 
will take place south of our border are much too clear.
  Tom Friedman of the New York Times has a column which puts another 
perspective on this matter that I think also makes sense. He is not 
interested in bailing out the bankers who hold some of the Mexican 
bonds, but he is interested in preserving our pension systems, which 
also hold many of these bonds.
  What he says makes sense, and I ask that the Tom Friedman column be 
printed in the Record.
  The column follows:

                           A Consumer's Guide

                        (By Thomas L. Friedman)

       Zurich.--One of the hottest topics in finance these days is 
     how to prevent another Mexico from destabilizing the global 
     financial system. Finance ministers will tell you that the 
     subject has been dominating all their international meetings, 
     and you are going to hear a lot of their proposed solutions 
     at this week's G-7 summit in Halifax. This is a Warning: 
     There is more nonsense than common sense among these 
     proposals. Since some of them could cost you money, I offer 
     this survival guide to the I-can-prevent-the-next-Mexico 
     schemes.
       I. Bad Ideas That Sound Good.
       The worst of these bad ideas is the proposal to establish a 
     $50 billion standby rescue fund--administered by the I.M.F.--
     that would be ready as a life preserver to be tossed to any 
     country dragged under the waves by global markets running 
     amok.
       I call this idea ``The George Soros Memorial Gift Fund.'' 
     In 1992 Mr. Soros, the billionaire currency speculator, 
     mounted a fierce attack on the overvalued British pound, and 
     Prime Minister John Major of Britain spent billions trying to 
     defend his inflated currency against a devaluation. 
     Eventually the pound was broken. But you can bet that if 
     there had been a $50 billion rescue fund available in 1993, 
     Mr. Major would have tapped it. And just as surely, that $50 
     billion would be in Mr. Soros' pocket today. The more money 
     that government leaders have to defend faulty economics and 
     their own egos, the richer Mr. Soros becomes by exposing 
     their foolishness.
       Don't get me wrong. I'm for the Mexico bailout. But I want 
     it to be hard. Dangling a $50 billion fund out there only 
     invites buccaneering governments to be reckless. Professors 
     should never begin the semester by announcing when the makeup 
     exam will be. Governments should have to operate on the 
     assumption that there will never be a makeup exam--and if 
     there is one, it will be an extraordinary event.
       II. Good Ideas That Are Not as Good as They Sound.
       The best of this lot is the decision by the I.M.F. to 
     intensify its surveillance of financially shaky nations. The 
     I.M.F. used to do only a once-a-year checkup on its client 
     countries. But it was precisely in the months between annual 
     checkups that Mexico went on the wild spending binge that 
     caused its financial heart attack.
       The I.M.F. has now promised to keep closer tabs on its 
     clients. But this is no cure-all. Remember one thing: Many of 
     Mexico's financial problems, on the eve of its crash, were 
     hiding in plain sight. Public data showed it was running 
     unsustainable deficits and was too dependent on hot money 
     from abroad. These data were ignored because investing in 
     Mexico had become a fad. Too many foreign investors had been 
     to cocktail parties where people were whispering: ``Mexico--
     you gotta be in Mexico.'' Fads will always trump logic. When 
     the Hula Hoop was hot, no one wanted to hear that it was bad 
     for your hips.
       III. Small Ideas That Could Make a Big Difference.
       1. Copy Chile. Chile demands that foreigners who want to 
     buy Chilean stocks hold them for at least a year. That way if 
     your country is practicing sound economics it won't be 
     punished when the next Mexico crashes and jittery investors 
     scream to their brokers: ``Get me out of all emerging 
     markets.'' In Chile's case, investors could not get out, and 
     so Chile, unlike Brazil and Argentina, was not punished for 
     Mexico's sins.
       2. Save, save and save. If your country has a low savings 
     rate, it will have to rely on another country's savings for 
     growth. That will make your country vulnerable to the whims 
     of global markets and global markets vulnerable to the crazy 
     behavior of your country. (See encyclopedia entry for 
     Mexico.)
       3. America's next global economic crusade should be to get 
     more developing countries to adopt U.S.-style securities 
     laws--the toughest in the world for financial disclosure, 
     conflict of interest and insider trading. Many of the new 
     stock markets in Asia and Latin America are still rigged 
     casinos, where investors are just begging for trouble. (See 
     encyclopedia entry for Barings Bank, Singapore.)
       4. Fasten your seat belts, put your tray tables and seat 
     backs in a fixed and upright position and enjoy the ride. 
     Because there is simply too much money, moving around the 
     world too quickly, with too few controls, and too many 
     governments ready to do anything to get slice of it, to 
     prevent another Mexico somewhere over the horizon.
     

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