[Congressional Record Volume 144, Number 129 (Thursday, September 24, 1998)]
[House]
[Pages H8604-H8605]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                          GLOBAL CREDIT CRUNCH

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from New York (Mr. Hinchey) is recognized for 5 minutes.
  Mr. HINCHEY. Mr. Speaker, we have crossed the threshold of 
uncertainty and we are now entering upon a new economic dimension. In 
fact, we have been in that dimension for some time now.
  Recalling the global economy, it is an area that is fraught with 
dangers and difficulties for us and other economies around the world. 
In fact, we have already seen its expression in East Asia, Russia and 
elsewhere, and the impact of the global economic decline is going to 
impact on us very soon and we need to prepare ourselves for it.
  The Federal Reserve in that regard should have lowered interest rates 
a year ago when the Asian crisis first became a threat. Chairman 
Greenspan has told us many times that it takes a year or more for 
changes in monetary policy to express themselves and become workable in 
the real world.
  In the meantime, things have only gotten worse. Economies all across 
Asia are depressed. Russia has collapsed, and Latin America looks like 
it will be the next region on the planet to contract this economic 
contagion.
  The first signs of trouble are showing up on our shores: Lower 
corporate profits, a rising trade deficit, a decrease in exports, 
layoffs in the manufacturing sector, sinking commodity prices, and, 
now, a looming credit crunch.
  Banks and securities firms the companies that were the biggest 
beneficiaries of the emerging market boom, are shaping up to be the 
biggest losers as these markets go bust.
  Our largest financial firms gambled trillions of dollars on these 
economies in a daisy chain of derivative transactions that were 
essentially placing highly leveraged bets on everything from exchange 
rates to interest rates to government bonds in a variety of countries.
  When the Russian government devalued its currency and defaulted on 
its obligations, it set off a global selling frenzy as these financial 
firms struggled to meet margin calls from their counterparts. Some of 
our biggest banks have announced losses of $1 billion or more in these 
transactions.
  Just yesterday, the New York Federal Reserve Bank orchestrated a 
multi-billion dollar bailout of a sophisticated hedge fund. These were 
not armchair investors who got in over their heads. This fund was run 
by the former head of a leading investment bank, two Nobel Prize-
winning economists, and a former vice-chairman of the Federal Reserve 
Board. It is amazing to think that losses of this magnitude could 
happen in a market that is essentially unregulated. It is even more 
amazing that some of my colleagues in this Congress would tie the hands 
of the one regulatory agency, the Commodities Futures Trading 
Commission, that is looking into this situation.
  The end result for the American people is that our banks are dipping 
into their reserves to cover these losses in these speculative 
derivatives transactions. This is money that will not be loaned to 
local businesses to financial local growth at home because it will not 
be there. This is money that will not help entrepreneurs with their 
start-up ventures. This is money that people will not be able to use to 
finance new homes, cars or other major purchases, because it will not 
be available.

[[Page H8605]]

  It is imperative that the Federal Reserve's Open Market Committee 
lower short-term interest rates when they meet next Tuesday. Not only 
will this send a signal to the global marketplace that we are committed 
to the strength of our economy, but it will also help alleviate the 
coming credit lunch.
  Last night I introduced House Concurrent Resolution 329, calling on 
the Federal Reserve Board to lower interest rates as soon as possible. 
I urge all of my colleagues to join me in sending this strong message 
to the Fed that the health of our economy depends on their expeditious 
action.

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