Kompas, Minggu 28 September 2008 | 03:00 WIB
A PRASETYANTOKO
Buku ini menarik karena ketika ditulis pada 1986 nyaris tidak diperhatikan orang. Di-”kemas ulang” dalam terbitan baru tahun 2008, justru pemikirannya kemudian dianggap sangat relevan dengan situasi akhir-akhir ini, saat pasar finansial mengalami gejolak drastis.
Henry Kaufman, tokoh pasar modal kontemporer, memberi kata pembuka yang menegaskan relevansi pemikiran Minsky di hari ini. Demikian pula dua pengikut pemikirannya, Dimitri B Papadimitiou dan L Randall Wray, memberikan kontekstualisasi yang sangat tajam terhadap pemikiran Minsky.
Apa esensi pemikiran di dalam buku ini? Berbeda dengan pemikir di zamannya, Minsky mengajukan argumen pokok, instabilitas finansial sebenarnya berasal dari dalam dirinya sendiri (endogen) dan bukan dari luar (eksogen). Secara lebih eksplisit dia jelaskan, kekacauan ekonomi atau finansial bukanlah karena perang, kenaikan harga minyak, huru-hara sosial politik atau bencana alam. Tetapi karena sifat alamiahnya yang spekulatif.
Pandangan tentang sifat endogen instabilitas ini tidak biasa pada zamannya. Aliran yang lebih dominan pada waktu ini (hingga saat ini) justru menganggap uang dan sirkulasinya bersifat netral, maka harus dikelola secara ”bebas” sehingga menghasilkan sistem alokasi yang efisien.
Bagi pemikir monetarist ini, intervensi pada sirkulasi kapital menjadi sesuatu yang ditabukan. Sebaliknya, menurut Minsky, karena pada dasarnya sektor finansial memiliki sifat alamiah yang tidak stabil, maka perlu ”dikelola” melalui berbagai campur tangan. Dengan kata lain, intervensi merupakan keharusan.
Relevansi
Mengapa pemikiran Minsky relevan? Pasar finansial Amerika Serikat (AS) akhir-akhir ini diwarnai serangkaian gejolak mendebarkan. Menyusul pernyataan kebangkrutan lembaga keuangan terbesar keempat AS, Lehman Brothers, pasar Wall Street terguncang. Dampaknya seperti tsunami yang melibas perusahaan-perusahaan finansial besar lainnya.
Harga saham perusahaan keuangan Morgan Stanley and Goldman Sachs tiba-tiba merosot sebesar masing-masing 11 dan 16 persen. Dan, US Federal Reserve terpaksa harus menyelamatkan American International Group (AIG) dengan menggelontorkan uang sebesar 85 miliar dollar AS.
Korban serta biaya dari krisis subprime mortgage sudah terlalu banyak. Dimulai dengan penyelamatan Bear Stearns Co.Inc, kemudian disusul dengan Fannie Mae dan Freddie Mac, dan akhirnya raksasa Lehman Brothers, Merrill Lynch, dan AIG.
Kebangkrutan perusahaan-perusahaan tersebut membawa dampak yang sistematis. Pasar credit derivatives dan structured finances terkena dampak langsung. Selebihnya, pasar keuangan pada umumnya mengalami guncangan, seperti dana pensiun, reksa dana, dan pasar obligasi. Ujung persoalan akhirnya sampai juga pada ekonomi riil dan daya beli konsumen. Diperkirakan, pusat gempa di pasar finansial AS ini akan menyebar ke lebih dari 100 negara di seluruh dunia. Sebuah gelombang masif yang mahadahsyat.
Terhadap gejolak tersebut, muncul pertanyaan serius, apa sebenarnya akar dari persoalan tersebut? Dan, bukankah dunia telah mengalami persoalan serupa berkali-kali, mengapa selalu berulang? Dulu pada tahun 1929, pasar modal AS diguncang oleh kepanikan yang berujung pada depresi besar (great depression) dunia. Masa-masa sulit tersebut telah mendera hampir semua negara di dunia. Pada tahun 1998, menyusul krisis yang terjadi di Rusia, sebuah perusahaan sekuritas besar, LTCM (Long-Term Capital Management), tumbang. Dan kini, dampak krisis subprime-mortgage merajalela.
Terkait dengan kekacauan pasar finansial AS tersebut, berbagai langkah penyelamatan dilakukan. Selain AIG, pemerintah juga menginjeksi Bear Stearns Co.Inc, Fannie Mae dan Freddie Mac. Mengapa mereka diselamatkan?
AIG disebut-sebut sebagai perusahaan asuransi terbesar di AS, sementara Fannie Mae dan Freddie Mac merupakan perusahaan yang bergerak di bidang pembiayaan perumahan paling besar. Jika perusahaan-perusahaan besar ini tidak diselamatkan, kekacauan akan semakin parah. Dengan kata lain, mereka terlalu besar untuk gagal (too big to fail).
Terkait dengan usaha penyelamatan tersebut, ada sebuah pertanyaan esensial yang mengusik. Bukankah pada akhirnya otoritas harus turun tangan juga menyelamatkan bisnis besar tersebut? Mengapa menunggu sampai terjadi kegagalan di pasar?
Inikah buntut dari pandangan bahwa negara hanya diperbolehkan masuk ketika pasar sudah gagal menyelesaikan persoalannya sendiri (market failure). Inikah model negara sebagai ”pemadam kebakaran”? Bukankah langkah-langkah penyelamatan ini tak lain sebuah intervensi? Dan, jika begitu, mengapa intervensi tidak dirancang untuk diimplementasikan pada sistem ekonomi sehingga kekacauan tidak perlu terjadi?
Pertanyaan-pertanyaan ini menjadi perhatian Minsky sudah sejak lama. Namun, pemikirannya dianggap menghambat perkembangan dinamika pasar finansial. Kini, ketika terbukti premis-premis yang disampaikan Minsky benar, bukunya dilakukan repackaging atau relevan untuk dikemas dan diterbitkan kembali.
Post-Keynesian
Buku Stabilizing an Unstable Economy mencoba menjelaskan mengapa ekonomi selalu mengandung gejolak dan instabilitas. Jawabannya, karena instabilitas disebabkan oleh perilaku finansial unit-unit ekonomi yang berada dalam ruang lingkup ekonomi tersebut.
Pemikirannya sangat dipengaruhi oleh Keynes tentang nilai investasi, ketidakpastian atas masa depan, perilaku spekulasi dan sifat binatang (animal spirit). Keynes pernah mengatakan ”dalam sebuah sistem ekonomi yang tidak stabil, sifat spekulasi mendominasi perusahaan-perusahaan”.
Bagi Minsky, instabilitas bersifat alamiah (natural) pada sebuah sistem perekonomian. Maka dari itu, ekonomi memang akan bergerak secara fluktuatif, kadang naik (boom), kadang surut (bust). Dan, sifat pasang surut ini digerakkan oleh kondisi keuangan unit-unit ekonomi (perusahaan, bank, lembaga sekuritas, dan sebagainya).
Ada 3 tipe utama, perilaku para agen ekonomi. Pertama, Hedge, ketika perusahaan bisa melunasi seluruh kewajibannya dari hasil operasional usahanya. Kedua, Speculative, terjadi kalau untuk melunasi kewajibannya perusahaan harus utang dulu, mengingat hasil operasinya tidak cukup untuk menutup utang. Ketiga, Ponzi, yaitu manakala untuk menutup kewajibannya perusahaan harus menjual seluruh asetnya terlebih dahulu (likuidasi).
Sistem finansial modern memungkinkan para pelaku ekonomi bersikap spekulatif dan karena itu dengan sangat mudah berubah menjadi ponzi. Apa yang terjadi pada Lehman dan perusahaan finansial lainnya persis sama dengan apa yang dikemukakan oleh Minsky. Seandainya mereka berhati-hati (hedge), maka tidak akan terjadi kekacauan seperti ini. Akan tetapi, karena hampir semua perusahaan bersifat spekulatif, maka dengan mudah bisa berubah menjadi ponzi. Dan, pada titik ini, pemerintah harus turun tangan menyelamatkan mereka.
Jadi, tidak berlebihan jika dikatakan kalau mereka untung hasilnya ”diprivatisasi” (dimiliki privat), tetapi jika rugi, bebannya dibagikan kepada pihak lain (sosialisasi). Hal yang sama sebenarnya terjadi pada kasus Bantuan Likuiditas Bank Indonesia (BLBI).
Krisis justru disebabkan oleh ulah para pelaku usaha yang tidak berhati-hati melakukan kebijakan keuangan. Tetapi ketika kondisi keuangan mereka jebol, APBN-lah yang harus menanggungnya. Lebih parah lagi, bantuan itu pun dikorupsi. Jadi, kurang apa lagi untuk menyeret para pelaku pembobolan BLBI ke meja hijau? Kasus ini mendesak dibuka kembali.
Mungkin inilah saatnya untuk memikirkan ulang format kebijakan ekonomi, baik pada level mikro (perusahaan), nasional, maupun global. Mungkinkah sistem yang mengandalkan fundamentalisme pasar seperti terjadi selama ini tidak akan bertahan lagi? Inikah saatnya kembali menata arsitektur baru sistem finansial global, di mana pola intervensi negara menjadi salah satu tulang punggungnya?
Banyak pengamat mulai mengatakan, rentetan krisis belakangan ini telah membawa kita kembali para era-Keynesianism. Dan, Minsky adalah seorang post-keynesianist sejati. Pemikirannya memang patut dikemas kembali karena justru begitu relevan akhir-akhir ini.
A Prasetyantoko Menyelesaikan Program Doktor Ilmu Ekonomi di ENS-Lyon bekerja sama dengan ESCP-EAP, European School of Management; Pengajar di Unika Atma Jaya, Jakarta
A PRASETYANTOKO
Dapatkan artikel ini di URL:
http://entertainment.kompas.com/read/xml/2008/09/28/01125694/menemukan.akar.instabilitas.finansial
Saturday, September 27, 2008
Saturday, September 20, 2008
KAPITALISME: AMERIKA DAN CINA
I.Wibowo
Mulai tanggal 15 September 2008 hingga seminggu kemudian seluruh dunia gemetar menyaksikan runtuhnya Lehman Brohters, disusul Merill Lynch, diikuti oleh AIG, dan dikhawatirkan Goldman Sachs serta Morgan Stanley akan segera mengiktui. Orang di seluruh dunia menjadi cemas. Indeks pasar saham di seluruh dunia berguguran. Ada kekhawatiran dunia akan tenggelam lagi dalam krisis seperti “Depresi Besar” pada tahun 1929!
Pemerintah Amerika mula-mula bersikap sesuai dengan textbook, yaitu tidak ambil tindakan. Maka Lehman Brothers Co. yang sudah berumur 198 tahun itu bertekuk lutut, sementara Merill Lynch dilego kepada Bank of America. Pemerintah Amerika percaya bahwa dengan ini pasar akan mengadakan self-correction. Ternyata keadaannya makin memburuk. Giliran AIG, perusahaan asuransi terbesar, menyatakan akan menyerah kalah. Pada titik inilah Pemerintah Amerika turun tangan, dan menyelamatkan AIG dengan menyuntikkan dana sebesar US$ 79 milyar. Pemerintah berpendapat bahwa tindakan menyelamatkan AIG adalah demi kepentingan rakyat Amerika yang menggantungkan pensiun mereka, tetapi juga demi menghentikan kepanikan di seluruh mengingat begitu besarnya usaha AIG. Tapi persis seminggu kemudian President Bush mengumumkan bahwa Pemerintah Federal akan mengambil inisiatif, dengan memakai uang pembayar pajak, untuk menyelamatkan bank-bank yang terancam gulung terikat. Besar bantuan itu US$ 700 milyar, malah bisa mencapai US$ 1 trilyun.
Dengan ini berakhirlah “pasar bebas” di Amerika. Pasar bebas ternyata harus diintervensi oleh negara agar bisa berfungsi secara normal lagi. Hal ini tentu saja segera mengingatkan peristiwa Depresi Besar ketika Presiden Roosevelt juga mengambil langkah untuk mengambil tindakan untuk menyelamatkan ekonomi yang sudah ambruk. Maka tidak heran bahwa orang mulai berbisik-bisik bahwa John Maynard Keynes telah bangkit dari kubur, begitu pula Keynesianisme. Padahal pada bulan Oktober yang akan datang akan diresmikan Milton Friedman Institute di Universitas Chicago, tempat untuk menebarkan dan membiakkan gagasan pasar bebas!
Cina juga
Pada saat yang bersamaan juga terjadi “market failure” di Cina. Pada tanggal 9 September 2008 tersiar berita bahwa susu buatan Pabrik Susu “Sanlu” tercemar dengan zat yang amat beracun dan berbahaya. Selang bebarapa hari diketahi bahwa susu yang telah dikonsumsi oleh bayi-bayi di seluruh Cina itu benar-benar telah menimbulkan malapetaka. Sekurang-kurangnya tiga bayi sudah tewas, dan sekian puluh yang mengalami gagal ginjal, dan sekian ribu yang mengalami aneka sakit sehubungan dengan pencernaan. Setelah diperiksa lebih lanjut, ternyata bukan hanya satu perusahaan saja yang menghasilkan susu yang tercemar. Ada sekurang-kurangnya 22 perusahaan lain yang melakukan tindakan tak bermoral itu.
Pemerintah Cina juga mula-mula bertindak dengan memecat kepala perusahaan, lalu juga bupati tempat produksi susu itu. Ketika ternyata kasusnya telah merembet lebih luas, Pemerintah Cina mengambil serangkaian tindakan untuk memeriksa semua pabrik susu di Cina. Tetapi terlambat sebab susu dengan aneka merk yang tercemar telah dikonsumsi oleh bayi-bayi di Cina, bahkan mungkin oleh bayi-bayi di Hong Kong, mungkin oleh bayi-bayi di luar negeri. Sampai kini Pemerintah Cina masih mencari cara yang tepat untuk mengatasi “krisis susu” ini, sebab tanpa tindakan yang meyakinkan dikhawatirkan bukan hanya usaha susu buatan Cina yang akan runtuh, tetapi juga seluruh usaha makanan jadi. Kalau ini terjadi, memang ekspor makanan jadi Cina juga terpengaruh, mungkin sekali tidak akan laku di seluruh dunia.
Self-regulating market?
Dalam dua kasus ini – krisis finansial dan krisis susu – nampak jelas bahwa pasar tidak bisa mengatur dirinya sendiri (self-regulating). Pasar keuangan di Amerika Serikat sebenarnya sudah pernah dikerangkeng oleh Presiden Roosevelt segera sesudah terjadinya Depresi Besar, tetapi oleh Presiden Clinton dilepaskan lagi. Dalam jaman globalisasi seperti saat ini liberalisasi pasar keuangan memang sangat diinginkan oleh para pengusaha dan spekulan, tetapi orang tahu bahwa situasi ini penuh risiko. Pasar tidak bisa mengatur diri sendiri, apalagi mengendalikan diri sendiri. Siapa yang bisa (dan berani) mengatur para spekulan dan fund managers?
Di Cina, situasi pasar bebas juga menghasilkan kekacauan. Para pelaku pasar (pengusaha) dengan tenang mencampurkan bahan kimia yang terlarang dalam susu untuk mengeruk keuntungan besar. Hal ini bahkan dilakukan oleh perusahaan yang ber-joint venture dengan perusahaan multinasional dari Selandia Baru. Sama dengan di Amerika, keuntungan jangka pendek menuntun pengusaha-pengusaha itu untuk mengeruk keuntungan, tidak peduli pada bahaya kematian yang ditimbulkan. Pasar di Cina, sama dengan di Amerika, tidak mampu mengatur, apalagi mengendalikan kualitas susu. Perusahaan akan bertindak setelah terjadi kecelakaan bahkan malapetaka besar. Pada saat itu negara mengadakan intervensi, tapi sudah terlambat. Korban sudah terlanjur berjatuhan.
Negara datang lagi
Kapitalisme di Amerika dan di Cina mengandalkan pasar bebas dan peran pengusaha swasta. Tidak ada tempat bagi negara. Kalau toh ada peran negara, ia tidak boleh masuk, apalagi mengintervensi. Para ekonom neo-liberal tetap mempertahankan ajaran ini seolah-olah sebuah dogma. Kalau terjadi sesuatu yang salah atau kacau, mereka langsung mengatakan bahwa itu karena kesalahan oknum. John McCain ada di garis pemikiran ini ketika dia mengatakan seandainya dia presiden dia akan memecat Chirstopher Fox, penanggung jawab pasar saham. Ini pula yang dilakukan di Cina, dengan memecati para pejabat yang dikatakan “bertanggung-jawab.” Mereka lupa bahwa orang ini adalah bagian dari sebuah sistem besar yang sering disebut “mekanisme pasar” itu.
Pasar bebas kini telah terkubur hidup-hidup, bahkan di tempat yang disebut-sebut sebagai “sarang kapitalisme.” Ketika pasar sekarat, tanpa malu-malu, mereka minta tolong kepada negara. Negara pun datang lagi seraya mengayunkan langkah besarnya. Betapapun Presiden Bush mencoba beretorika, yang dilakukan adalah tindakan penyelamatan oleh negara. Hu Jintao dengan ucapan yang implisit, juga melabrak bawahan-bawahannya supaya mereka tidak berpangku tangan.
Mulai tanggal 15 September 2008 hingga seminggu kemudian seluruh dunia gemetar menyaksikan runtuhnya Lehman Brohters, disusul Merill Lynch, diikuti oleh AIG, dan dikhawatirkan Goldman Sachs serta Morgan Stanley akan segera mengiktui. Orang di seluruh dunia menjadi cemas. Indeks pasar saham di seluruh dunia berguguran. Ada kekhawatiran dunia akan tenggelam lagi dalam krisis seperti “Depresi Besar” pada tahun 1929!
Pemerintah Amerika mula-mula bersikap sesuai dengan textbook, yaitu tidak ambil tindakan. Maka Lehman Brothers Co. yang sudah berumur 198 tahun itu bertekuk lutut, sementara Merill Lynch dilego kepada Bank of America. Pemerintah Amerika percaya bahwa dengan ini pasar akan mengadakan self-correction. Ternyata keadaannya makin memburuk. Giliran AIG, perusahaan asuransi terbesar, menyatakan akan menyerah kalah. Pada titik inilah Pemerintah Amerika turun tangan, dan menyelamatkan AIG dengan menyuntikkan dana sebesar US$ 79 milyar. Pemerintah berpendapat bahwa tindakan menyelamatkan AIG adalah demi kepentingan rakyat Amerika yang menggantungkan pensiun mereka, tetapi juga demi menghentikan kepanikan di seluruh mengingat begitu besarnya usaha AIG. Tapi persis seminggu kemudian President Bush mengumumkan bahwa Pemerintah Federal akan mengambil inisiatif, dengan memakai uang pembayar pajak, untuk menyelamatkan bank-bank yang terancam gulung terikat. Besar bantuan itu US$ 700 milyar, malah bisa mencapai US$ 1 trilyun.
Dengan ini berakhirlah “pasar bebas” di Amerika. Pasar bebas ternyata harus diintervensi oleh negara agar bisa berfungsi secara normal lagi. Hal ini tentu saja segera mengingatkan peristiwa Depresi Besar ketika Presiden Roosevelt juga mengambil langkah untuk mengambil tindakan untuk menyelamatkan ekonomi yang sudah ambruk. Maka tidak heran bahwa orang mulai berbisik-bisik bahwa John Maynard Keynes telah bangkit dari kubur, begitu pula Keynesianisme. Padahal pada bulan Oktober yang akan datang akan diresmikan Milton Friedman Institute di Universitas Chicago, tempat untuk menebarkan dan membiakkan gagasan pasar bebas!
Cina juga
Pada saat yang bersamaan juga terjadi “market failure” di Cina. Pada tanggal 9 September 2008 tersiar berita bahwa susu buatan Pabrik Susu “Sanlu” tercemar dengan zat yang amat beracun dan berbahaya. Selang bebarapa hari diketahi bahwa susu yang telah dikonsumsi oleh bayi-bayi di seluruh Cina itu benar-benar telah menimbulkan malapetaka. Sekurang-kurangnya tiga bayi sudah tewas, dan sekian puluh yang mengalami gagal ginjal, dan sekian ribu yang mengalami aneka sakit sehubungan dengan pencernaan. Setelah diperiksa lebih lanjut, ternyata bukan hanya satu perusahaan saja yang menghasilkan susu yang tercemar. Ada sekurang-kurangnya 22 perusahaan lain yang melakukan tindakan tak bermoral itu.
Pemerintah Cina juga mula-mula bertindak dengan memecat kepala perusahaan, lalu juga bupati tempat produksi susu itu. Ketika ternyata kasusnya telah merembet lebih luas, Pemerintah Cina mengambil serangkaian tindakan untuk memeriksa semua pabrik susu di Cina. Tetapi terlambat sebab susu dengan aneka merk yang tercemar telah dikonsumsi oleh bayi-bayi di Cina, bahkan mungkin oleh bayi-bayi di Hong Kong, mungkin oleh bayi-bayi di luar negeri. Sampai kini Pemerintah Cina masih mencari cara yang tepat untuk mengatasi “krisis susu” ini, sebab tanpa tindakan yang meyakinkan dikhawatirkan bukan hanya usaha susu buatan Cina yang akan runtuh, tetapi juga seluruh usaha makanan jadi. Kalau ini terjadi, memang ekspor makanan jadi Cina juga terpengaruh, mungkin sekali tidak akan laku di seluruh dunia.
Self-regulating market?
Dalam dua kasus ini – krisis finansial dan krisis susu – nampak jelas bahwa pasar tidak bisa mengatur dirinya sendiri (self-regulating). Pasar keuangan di Amerika Serikat sebenarnya sudah pernah dikerangkeng oleh Presiden Roosevelt segera sesudah terjadinya Depresi Besar, tetapi oleh Presiden Clinton dilepaskan lagi. Dalam jaman globalisasi seperti saat ini liberalisasi pasar keuangan memang sangat diinginkan oleh para pengusaha dan spekulan, tetapi orang tahu bahwa situasi ini penuh risiko. Pasar tidak bisa mengatur diri sendiri, apalagi mengendalikan diri sendiri. Siapa yang bisa (dan berani) mengatur para spekulan dan fund managers?
Di Cina, situasi pasar bebas juga menghasilkan kekacauan. Para pelaku pasar (pengusaha) dengan tenang mencampurkan bahan kimia yang terlarang dalam susu untuk mengeruk keuntungan besar. Hal ini bahkan dilakukan oleh perusahaan yang ber-joint venture dengan perusahaan multinasional dari Selandia Baru. Sama dengan di Amerika, keuntungan jangka pendek menuntun pengusaha-pengusaha itu untuk mengeruk keuntungan, tidak peduli pada bahaya kematian yang ditimbulkan. Pasar di Cina, sama dengan di Amerika, tidak mampu mengatur, apalagi mengendalikan kualitas susu. Perusahaan akan bertindak setelah terjadi kecelakaan bahkan malapetaka besar. Pada saat itu negara mengadakan intervensi, tapi sudah terlambat. Korban sudah terlanjur berjatuhan.
Negara datang lagi
Kapitalisme di Amerika dan di Cina mengandalkan pasar bebas dan peran pengusaha swasta. Tidak ada tempat bagi negara. Kalau toh ada peran negara, ia tidak boleh masuk, apalagi mengintervensi. Para ekonom neo-liberal tetap mempertahankan ajaran ini seolah-olah sebuah dogma. Kalau terjadi sesuatu yang salah atau kacau, mereka langsung mengatakan bahwa itu karena kesalahan oknum. John McCain ada di garis pemikiran ini ketika dia mengatakan seandainya dia presiden dia akan memecat Chirstopher Fox, penanggung jawab pasar saham. Ini pula yang dilakukan di Cina, dengan memecati para pejabat yang dikatakan “bertanggung-jawab.” Mereka lupa bahwa orang ini adalah bagian dari sebuah sistem besar yang sering disebut “mekanisme pasar” itu.
Pasar bebas kini telah terkubur hidup-hidup, bahkan di tempat yang disebut-sebut sebagai “sarang kapitalisme.” Ketika pasar sekarat, tanpa malu-malu, mereka minta tolong kepada negara. Negara pun datang lagi seraya mengayunkan langkah besarnya. Betapapun Presiden Bush mencoba beretorika, yang dilakukan adalah tindakan penyelamatan oleh negara. Hu Jintao dengan ucapan yang implisit, juga melabrak bawahan-bawahannya supaya mereka tidak berpangku tangan.
$700 Billion Is Sought for Wall Street in Massive Bailout
The New York Times
September 21, 2008
By DAVID M. HERSZENHORN
WASHINGTON — The Bush administration on Saturday formally proposed to Congress what could become the largest financial bailout in United States history, requesting unfettered authority for the Treasury Department to buy up to $700 billion in mortgage-related assets.
The proposal, not quite three pages long, was stunning for its stark simplicity. It would raise the national debt ceiling to $11.3 trillion. And it would place no restrictions on the administration other than requiring semiannual reports to Congress, granting the Treasury secretary unprecedented power to buy and resell mortgage debt.
Staff members from Treasury and the House Financial Services and Senate banking committees immediately began meeting on Capitol Hill, where negotiations were likely to be complicated but quick. Democratic Congressional leaders have pledged to approve legislation by the end of this week.
Even as talks got underway, there were signs of how very much in flux the plan remained. The administration was suggesting it might adjust its proposal, to purchase assets from financial institutions based in the United States, to enable foreign firms with United States affiliates to make use of it as well.
The ambitious effort to transfer the bad debts of Wall Street, at least temporarily, into the obligations of American taxpayers, was first put forward by the administration late last week, after a series of bold interventions on behalf of ailing private firms seemed unlikely to prevent a crash of world financial markets.
A $700 billion expenditure on distressed mortgage-related assets would be roughly what the country has spent so far in direct costs on the Iraq war and more than the Pentagon’s total yearly budget appropriation. Divided across the population, it would amount to more than $2,000 for every man, woman and child in the United States.
Whatever is spent will add to a budget deficit already projected at more than $500 billion next year. And it comes on top of the $85 billion government rescue of the insurance giant, American International Group, and a plan to spend up to $200 billion to shore up the mortgage finance giants, Fannie Mae and Freddie Mac.
“This is a big package, because it was a big problem,” President Bush said on Saturday at a news conference at the White House after meeting with President Álvaro Uribe of Colombia. “I will tell our citizens and continue to remind them that the risk of doing nothing far outweighs the risk of the package, and that, over time, we’re going to get a lot of the money back.”
Mr. Bush also sought to portray the plan as benefiting every American. “The government needed to send a clear signal that we understood the instability could ripple throughout and affect the working people and the average family, and we weren’t going to let that happen.”
Key Democratic lawmakers have made clear that they want to include in the legislation at least some assurance that the administration would use its new role, as the owner of large amounts of mortgage debt, to move aggressively to help hundreds of thousands of troubled borrowers at risk of foreclosure.
A program to help refinance mortgages — including an $800 billion increase in the national debt limit — was approved in July. But financing for it largely depended on fees paid by the mortgage finance giants, Fannie Mae and Freddie Mac, which have been placed into a government conservatorship.
Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, said his staff had already begun working with the Senate banking committee to draft additions to the administration’s proposal.
Mr. Frank said Democrats were particularly intent on limiting the huge pay packages for corporate executives whose firms seek aid under the new plan — raising the prospect of a contentious battle with the White House.
“There are going to be federal tax dollars buying up some of the bad paper,” Mr. Frank said. “They should accept some compensation guidelines, particularly to get rid of the perverse incentives where it’s ‘heads I win, tails I break even.’ ”
Mr. Frank said Congressional leaders were also considering other measures, perhaps including a wider economic stimulus initiative, either as part of the administration’s plan or as part of the budget resolution that Congress must pass before adjourning at the end of the week.
Aides to Speaker Nancy Pelosi and Steny H. Hoyer, Democrat of Maryland, the House majority leader, said they were reviewing the proposal.
Some Congressional Republicans warned Democrats not to overreach. “The administration has put forward a plan to help the American people and it is now incumbent on Congress to work together to solve this crisis,” said Representative John A. Boehner of Ohio, the Republican leader.
Mr. Boehner added: “Efforts to exploit this crisis for political leverage or partisan quid pro quo will only delay the economic stability that families, seniors, and small businesses deserve.”
Senator Charles E. Schumer of New York, who attended emergency meetings with the Treasury secretary, Henry M. Paulson Jr., and the Federal Reserve chairman, Ben S. Bernanke, on Capitol Hill last week, described the proposal as a good start, but said that it did little for regular Americans.
“This is a good foundation of a plan that can stabilize markets quickly,” Mr. Schumer said in a statement. “But it includes no visible protection for taxpayers or homeowners. We look forward to talking to Treasury to see what, if anything, they have in mind in these two areas.”
In Florida, Senator Barack Obama of Illinois, the Democratic presidential nominee, said he would press for a broader economic stimulus initiative to be part of the bailout plan for financial firms.
Aides said Mr. Obama was still reviewing the administration’s proposal. But in Daytona Beach, Fla., he told voters, “We have to make sure that whatever plan our government comes up with works not just for Wall Street, but for Main Street.”
He added: “We have to make sure it helps folks cope with rising prices, and sparks job creation, and helps homeowners stay in their homes. That’s the kind of help folks need right now.”
Senator John McCain of Arizona, the Republican nominee, issued a statement on Saturday saying he was reviewing the administration’s plan. He also urged the administration and lawmakers to consider his own plan for creating a trust within the Treasury Department to aid ailing mortgage lenders and other financial institutions.
“This financial crisis requires leadership and action in order to restore a sound foundation to financial markets, get our economy on its feet, and eliminate this burden on hardworking middle-class Americans,” Mr. McCain said in his statement.
If adopted, the bailout plan would sharply raise the stakes for the new administration on the appointment of a new Treasury secretary.
The administration’s plan would allow the Treasury to hire staff and engage outside firms to help manage its purchases. And officials said that the administration envisioned enlisting several outside firms to help run the effort to buy up mortgage-related assets.
Mindful of a potential political fight, Mr. Paulson and Mr. Bernanke held a series of conference calls with members of Congress on Friday to begin selling them on the proposal, and to assure them that action was needed not just to help Wall Street but everyday Americans as well.
They emphasized that the risk of steep declines in worldwide markets posed a grave risk to all Americans, especially their retirement plans and college savings for children but also their access to consumer credit including auto loans.
Mr. Bernanke, for instance, pointed out that many Americans have savings invested in money market funds, which were at risk of unexpected losses.
It was clear after those conversations that lawmakers were roughly divided into four groups. Republicans most supportive of the administration were in favor of approving the plan as swiftly as possible and with relatively few changes.
Senator Mitch McConnell of Kentucky, the Republican leader, said in a statement: “This proposal is, and should be kept, simple and clear.” He added, “Simply put, now is not the time for partisan plans or pet projects.”
Some Democrats, including lawmakers like Mr. Frank and Senator Christopher J. Dodd, Democrat of Connecticut and the chairman of the banking committee, were adamant about including provisions to promote government action to stabilize real estate prices and help troubled borrowers refinance their mortgages.
Still another group of Democrats was pushing for a wider stimulus package that would direct help more directly and immediately to Main Street, perhaps including an increase in unemployment benefits and investments in infrastructure projects, including bridges and roads, that would help to create jobs.
A fourth, smaller group of lawmakers was highly critical and in some cases adamantly opposed to the plan. That group included including Senator Jim Bunning, Republican of Kentucky, and Senator Bernard Sanders, independent of Vermont.
“The free market for all intents and purposes is dead in America,” Mr. Bunning declared on Friday. “The action proposed today by the Treasury Department will take away the free market and institute socialism in America. The American taxpayer has been misled throughout this economic crisis. The government on all fronts has failed the American people miserably.”
It is far from clear how much distressed debt the government will actually end up purchasing under the plan, though it seemed likely that the $700-billion figure was large enough to send a reassuring message to the jittery markets. There are estimates that firms are carrying up to $1 trillion or more in bad mortgage-related assets.
Lehman Can Sell to Barclays
NEW YORK (AP) — A bankruptcy judge decided just after midnight Saturday that Lehman Brothers can sell its investment banking and trading businesses to Barclays, the first major step to wind down the nation’s fourth-largest investment bank.
United States Bankruptcy Judge James Peck gave his decision in a courtroom packed with lawyers at the end of an eight-hour hearing, which capped a week of financial turmoil.
The deal was said to be worth $1.75 billion earlier in the week but the value was in flux after lawyers announced changes to the terms on Friday. It may now be worth closer to $1.35 billion, which includes the $960 million price tag on Lehman’s Midtown Manhattan office tower.
Lehman Brothers Holdings Inc. filed the biggest bankruptcy in United States history Monday, after Barclays PLC declined to buy the investment bank in its entirety. The British bank will take control of Lehman units that employ about 9,000 employees in the United States.
Jeff Zeleny contributed reporting from Daytona Beach, Fla.; Michael Cooper, Carl Hulse, David Stout and Stephen Labaton contributed.
September 21, 2008
By DAVID M. HERSZENHORN
WASHINGTON — The Bush administration on Saturday formally proposed to Congress what could become the largest financial bailout in United States history, requesting unfettered authority for the Treasury Department to buy up to $700 billion in mortgage-related assets.
The proposal, not quite three pages long, was stunning for its stark simplicity. It would raise the national debt ceiling to $11.3 trillion. And it would place no restrictions on the administration other than requiring semiannual reports to Congress, granting the Treasury secretary unprecedented power to buy and resell mortgage debt.
Staff members from Treasury and the House Financial Services and Senate banking committees immediately began meeting on Capitol Hill, where negotiations were likely to be complicated but quick. Democratic Congressional leaders have pledged to approve legislation by the end of this week.
Even as talks got underway, there were signs of how very much in flux the plan remained. The administration was suggesting it might adjust its proposal, to purchase assets from financial institutions based in the United States, to enable foreign firms with United States affiliates to make use of it as well.
The ambitious effort to transfer the bad debts of Wall Street, at least temporarily, into the obligations of American taxpayers, was first put forward by the administration late last week, after a series of bold interventions on behalf of ailing private firms seemed unlikely to prevent a crash of world financial markets.
A $700 billion expenditure on distressed mortgage-related assets would be roughly what the country has spent so far in direct costs on the Iraq war and more than the Pentagon’s total yearly budget appropriation. Divided across the population, it would amount to more than $2,000 for every man, woman and child in the United States.
Whatever is spent will add to a budget deficit already projected at more than $500 billion next year. And it comes on top of the $85 billion government rescue of the insurance giant, American International Group, and a plan to spend up to $200 billion to shore up the mortgage finance giants, Fannie Mae and Freddie Mac.
“This is a big package, because it was a big problem,” President Bush said on Saturday at a news conference at the White House after meeting with President Álvaro Uribe of Colombia. “I will tell our citizens and continue to remind them that the risk of doing nothing far outweighs the risk of the package, and that, over time, we’re going to get a lot of the money back.”
Mr. Bush also sought to portray the plan as benefiting every American. “The government needed to send a clear signal that we understood the instability could ripple throughout and affect the working people and the average family, and we weren’t going to let that happen.”
Key Democratic lawmakers have made clear that they want to include in the legislation at least some assurance that the administration would use its new role, as the owner of large amounts of mortgage debt, to move aggressively to help hundreds of thousands of troubled borrowers at risk of foreclosure.
A program to help refinance mortgages — including an $800 billion increase in the national debt limit — was approved in July. But financing for it largely depended on fees paid by the mortgage finance giants, Fannie Mae and Freddie Mac, which have been placed into a government conservatorship.
Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, said his staff had already begun working with the Senate banking committee to draft additions to the administration’s proposal.
Mr. Frank said Democrats were particularly intent on limiting the huge pay packages for corporate executives whose firms seek aid under the new plan — raising the prospect of a contentious battle with the White House.
“There are going to be federal tax dollars buying up some of the bad paper,” Mr. Frank said. “They should accept some compensation guidelines, particularly to get rid of the perverse incentives where it’s ‘heads I win, tails I break even.’ ”
Mr. Frank said Congressional leaders were also considering other measures, perhaps including a wider economic stimulus initiative, either as part of the administration’s plan or as part of the budget resolution that Congress must pass before adjourning at the end of the week.
Aides to Speaker Nancy Pelosi and Steny H. Hoyer, Democrat of Maryland, the House majority leader, said they were reviewing the proposal.
Some Congressional Republicans warned Democrats not to overreach. “The administration has put forward a plan to help the American people and it is now incumbent on Congress to work together to solve this crisis,” said Representative John A. Boehner of Ohio, the Republican leader.
Mr. Boehner added: “Efforts to exploit this crisis for political leverage or partisan quid pro quo will only delay the economic stability that families, seniors, and small businesses deserve.”
Senator Charles E. Schumer of New York, who attended emergency meetings with the Treasury secretary, Henry M. Paulson Jr., and the Federal Reserve chairman, Ben S. Bernanke, on Capitol Hill last week, described the proposal as a good start, but said that it did little for regular Americans.
“This is a good foundation of a plan that can stabilize markets quickly,” Mr. Schumer said in a statement. “But it includes no visible protection for taxpayers or homeowners. We look forward to talking to Treasury to see what, if anything, they have in mind in these two areas.”
In Florida, Senator Barack Obama of Illinois, the Democratic presidential nominee, said he would press for a broader economic stimulus initiative to be part of the bailout plan for financial firms.
Aides said Mr. Obama was still reviewing the administration’s proposal. But in Daytona Beach, Fla., he told voters, “We have to make sure that whatever plan our government comes up with works not just for Wall Street, but for Main Street.”
He added: “We have to make sure it helps folks cope with rising prices, and sparks job creation, and helps homeowners stay in their homes. That’s the kind of help folks need right now.”
Senator John McCain of Arizona, the Republican nominee, issued a statement on Saturday saying he was reviewing the administration’s plan. He also urged the administration and lawmakers to consider his own plan for creating a trust within the Treasury Department to aid ailing mortgage lenders and other financial institutions.
“This financial crisis requires leadership and action in order to restore a sound foundation to financial markets, get our economy on its feet, and eliminate this burden on hardworking middle-class Americans,” Mr. McCain said in his statement.
If adopted, the bailout plan would sharply raise the stakes for the new administration on the appointment of a new Treasury secretary.
The administration’s plan would allow the Treasury to hire staff and engage outside firms to help manage its purchases. And officials said that the administration envisioned enlisting several outside firms to help run the effort to buy up mortgage-related assets.
Mindful of a potential political fight, Mr. Paulson and Mr. Bernanke held a series of conference calls with members of Congress on Friday to begin selling them on the proposal, and to assure them that action was needed not just to help Wall Street but everyday Americans as well.
They emphasized that the risk of steep declines in worldwide markets posed a grave risk to all Americans, especially their retirement plans and college savings for children but also their access to consumer credit including auto loans.
Mr. Bernanke, for instance, pointed out that many Americans have savings invested in money market funds, which were at risk of unexpected losses.
It was clear after those conversations that lawmakers were roughly divided into four groups. Republicans most supportive of the administration were in favor of approving the plan as swiftly as possible and with relatively few changes.
Senator Mitch McConnell of Kentucky, the Republican leader, said in a statement: “This proposal is, and should be kept, simple and clear.” He added, “Simply put, now is not the time for partisan plans or pet projects.”
Some Democrats, including lawmakers like Mr. Frank and Senator Christopher J. Dodd, Democrat of Connecticut and the chairman of the banking committee, were adamant about including provisions to promote government action to stabilize real estate prices and help troubled borrowers refinance their mortgages.
Still another group of Democrats was pushing for a wider stimulus package that would direct help more directly and immediately to Main Street, perhaps including an increase in unemployment benefits and investments in infrastructure projects, including bridges and roads, that would help to create jobs.
A fourth, smaller group of lawmakers was highly critical and in some cases adamantly opposed to the plan. That group included including Senator Jim Bunning, Republican of Kentucky, and Senator Bernard Sanders, independent of Vermont.
“The free market for all intents and purposes is dead in America,” Mr. Bunning declared on Friday. “The action proposed today by the Treasury Department will take away the free market and institute socialism in America. The American taxpayer has been misled throughout this economic crisis. The government on all fronts has failed the American people miserably.”
It is far from clear how much distressed debt the government will actually end up purchasing under the plan, though it seemed likely that the $700-billion figure was large enough to send a reassuring message to the jittery markets. There are estimates that firms are carrying up to $1 trillion or more in bad mortgage-related assets.
Lehman Can Sell to Barclays
NEW YORK (AP) — A bankruptcy judge decided just after midnight Saturday that Lehman Brothers can sell its investment banking and trading businesses to Barclays, the first major step to wind down the nation’s fourth-largest investment bank.
United States Bankruptcy Judge James Peck gave his decision in a courtroom packed with lawyers at the end of an eight-hour hearing, which capped a week of financial turmoil.
The deal was said to be worth $1.75 billion earlier in the week but the value was in flux after lawyers announced changes to the terms on Friday. It may now be worth closer to $1.35 billion, which includes the $960 million price tag on Lehman’s Midtown Manhattan office tower.
Lehman Brothers Holdings Inc. filed the biggest bankruptcy in United States history Monday, after Barclays PLC declined to buy the investment bank in its entirety. The British bank will take control of Lehman units that employ about 9,000 employees in the United States.
Jeff Zeleny contributed reporting from Daytona Beach, Fla.; Michael Cooper, Carl Hulse, David Stout and Stephen Labaton contributed.
Bush can share the blame for financial crisis
International Herald Tribune
By Mark Landler and Sheryl Gay Stolberg
Saturday, September 20, 2008
WASHINGTON: For his entire presidency, George W. Bush has tried to avoid the fate of his father: brought low by a feeble economy. Now, as the financial crisis radiates far beyond Wall Street, Bush faces an even grimmer prospect: being blamed, at least in part, for an economic breakdown.
"There will be ample opportunity to debate the origins of this problem," Bush said Friday in a televised address from the White House Rose Garden. "Now is the time to solve it."
But in Washington and on Wall Street, the debate has already begun. And while economists and other experts say there are plenty of culprits: Democrats and Republicans in Congress, the Federal Reserve, an overzealous home-lending industry, banks, and also Bush's predecessor, Bill Clinton - they do agree that the Bush administration bears part of the blame.
These experts, from both political parties, say Bush's early personnel choices and overarching antipathy toward regulation created a climate that, if it did not trigger the turmoil, almost certainly aggravated it. The president's first two Treasury secretaries, for instance, lacked the kind of Wall Street expertise that might have helped them raise red flags about the use of complex financial instruments at the heart of the crisis.
To his credit, Bush accurately foresaw the danger posed by Freddie Mac and Fannie Mae, and began calling as early as 2002 for greater regulation of the mortgage giants. But experts say the administration could have done even more to curb excesses in the housing market, and much more to police Wall Street, which transmitted those problems around the world.
In retrospect, "it would have helped for the Bush administration to empower the folks at Treasury and the Federal Reserve and the comptroller of the currency and the FDIC to look at these issues more closely," said Vince Reinhardt, a former Federal Reserve economist now at the American Enterprise Institute, a conservative-leaning research organization here. Reinhardt said it would also have helped "for Congress to have held hearings."
Instead, voices inside the administration who favored tougher policing of Wall Street found themselves with few supporters. William Donaldson, a former Wall Street executive with respected Republican credentials who became chairman of the Securities and Exchange Commission under Bush, quit in 2005 after facing resistance from the White House and Republican members of the panel, who criticized his support for stiffer regulations on mutual funds and hedge funds.
Today, even those sympathetic to Bush say he cannot disentangle himself from a home-lending industry run amok or a banking industry that mortgaged its future on toxic loans.
"The crisis definitely happened on their watch," said Kenneth Rogoff, a professor of economics at Harvard University who advises the Republican presidential candidate John McCain. "This is eight years into the Bush administration. There was a lot of time to deal with it."
To some extent, Bush was simply following a deregulatory pattern set by Clinton. Perhaps the most significant recent deregulation of the banking industry - the landmark act that allowed commercial banks to expand into other financial activities, like investment banking and insurance - was signed into law by Clinton in 1999.
Bush also inherited a culture of borrowing and a frothy housing market that has become "deeply embedded in the American psyche," Rogoff said. And Reinhardt said the markets seemed to be doing so well that few analysts, either in government or the private sector, had a critical eye.
"When everybody is doing better," Rogoff said, "it is difficult to see the underlying weaknesses."
Still, the White House, in the view of critics, fostered a free-market hothouse in which these excesses were able to flower. It avoided regulation of banks and mortgage brokers, leaving much of that work to the Federal Reserve, which, under Alan Greenspan, showed little appetite for regulation. By the time Bush's current Treasury secretary, Henry Paulson Jr., proposed an overhaul of regulations governing the financial sector in April, the storm was already brewing.
The administration did push hard on Capitol Hill to rein in Fannie Mae and Freddie Mac, only to find itself stymied by Congress. But the administration's intense focus on fending off what it foresaw as a looming housing crisis did not extend to the proliferation of fiendishly complex mortgage-backed securities, said Harvey Rosen, an economist who served on Bush's Council of Economic Advisers, briefly as its chairman.
"Maybe there should have been," Rosen said, "but we were focused more on the fact that if these entities just held plain-vanilla mortgage-backed securities, it was still a disaster in the making."
Beyond its deregulatory bent, some economists argue that the administration's fiscal and tax policies made the United States more dependent on foreign capital, which fueled the bubble in housing prices.
"A different Treasury would have taken a different approach," said Lawrence Summers, who served as Treasury secretary in the Clinton administration. "I don't think the economy has been well-managed, and that has certainly been crucial for the problems we're facing."
The White House and Congress wanted to make housing affordable to more Americans, and freeing up the lending markets was a way to do that. As Rogoff said, "It was a market-based way to help poor people. There was an incredible belief in free markets."
For all that faith, Bush's first two Treasury secretaries, Paul O'Neill and John Snow, came from top jobs in industry, not Wall Street. They were viewed in Washington as advocating the interests of business, and being less comfortable with the mysteries of the markets.
Neither was seen as having much influence with the White House, and the Treasury lost some of the primacy in economic policy it had enjoyed under Summers and his predecessor, Robert Rubin. O'Neill and Snow declined to be interviewed for this article.
"The primary agency responsible for keeping an eye on these things is, and should be, the Treasury Department, and I think the president erred in the first place by appointing two secretaries who had no background in finance," said Bruce Bartlett, a Republican economist who was an adviser to President Ronald Reagan and an official in the Treasury Department under President George H.W. Bush.
"If we had had a Treasury that was fully supported by the White House," Bartlett said, "and a Treasury secretary such as Hank Paulson who was really attuned to what was going on in the financial markets, maybe some of these things could have been perceived in advance."
The White House did name people well-versed in the markets to other posts, not least the chairmanship of the Securities and Exchange Commission. But Bush's first SEC chairman - Harvey Pitt, a prominent securities lawyer - was brought down by political missteps. Pitt was replaced by Donaldson, who quit in 2005.
Critics, including McCain, say the SEC has been less active under its current chairman, Christopher Cox, a former Republican congressman from California. It has spent less on enforcement and levied less in fines on wrongdoers, according to the Government Accountability Office.
"You can't overestimate what happens when you encourage regulators to believe that the goal of regulation is not to regulate," said Joseph Stiglitz, a Nobel Prize-winning economist at Columbia University.
In other areas, the Bush administration's failures seem more a case of inaction. The administration, economists said, did little to curb the practices of mortgage brokers, who are regulated by the states. But Democrats in Congress were equally to blame for this, these economists said.
"The Democrats pushed affordable housing goals, even in the face of evidence that people who got the loans shouldn't have gotten them," said Robert Litan, a senior fellow at the Brookings Institution, a research organization in Washington. "The no-money-down loans of 2005 and 2006 were a key part of the problem."
"I blame the Democrats for demanding that Fannie Mae keep buying these loans," said Litan, who was a budget official in the Clinton administration. "I blame the administration for going along with it."
White House officials note that the administration did propose reforms of real estate settlement procedures and the Federal Housing Authority, two areas it had identified as posing the greatest systemic risk to markets. Democrats in Congress, they said, blocked these efforts.
When Bush named Paulson to replace Snow in 2006, the Treasury Department finally got an expert in markets. But early on, his focus was on improving the competitiveness of the U.S. financial sector, which he feared was losing ground to Europe and Asia.
By Mark Landler and Sheryl Gay Stolberg
Saturday, September 20, 2008
WASHINGTON: For his entire presidency, George W. Bush has tried to avoid the fate of his father: brought low by a feeble economy. Now, as the financial crisis radiates far beyond Wall Street, Bush faces an even grimmer prospect: being blamed, at least in part, for an economic breakdown.
"There will be ample opportunity to debate the origins of this problem," Bush said Friday in a televised address from the White House Rose Garden. "Now is the time to solve it."
But in Washington and on Wall Street, the debate has already begun. And while economists and other experts say there are plenty of culprits: Democrats and Republicans in Congress, the Federal Reserve, an overzealous home-lending industry, banks, and also Bush's predecessor, Bill Clinton - they do agree that the Bush administration bears part of the blame.
These experts, from both political parties, say Bush's early personnel choices and overarching antipathy toward regulation created a climate that, if it did not trigger the turmoil, almost certainly aggravated it. The president's first two Treasury secretaries, for instance, lacked the kind of Wall Street expertise that might have helped them raise red flags about the use of complex financial instruments at the heart of the crisis.
To his credit, Bush accurately foresaw the danger posed by Freddie Mac and Fannie Mae, and began calling as early as 2002 for greater regulation of the mortgage giants. But experts say the administration could have done even more to curb excesses in the housing market, and much more to police Wall Street, which transmitted those problems around the world.
In retrospect, "it would have helped for the Bush administration to empower the folks at Treasury and the Federal Reserve and the comptroller of the currency and the FDIC to look at these issues more closely," said Vince Reinhardt, a former Federal Reserve economist now at the American Enterprise Institute, a conservative-leaning research organization here. Reinhardt said it would also have helped "for Congress to have held hearings."
Instead, voices inside the administration who favored tougher policing of Wall Street found themselves with few supporters. William Donaldson, a former Wall Street executive with respected Republican credentials who became chairman of the Securities and Exchange Commission under Bush, quit in 2005 after facing resistance from the White House and Republican members of the panel, who criticized his support for stiffer regulations on mutual funds and hedge funds.
Today, even those sympathetic to Bush say he cannot disentangle himself from a home-lending industry run amok or a banking industry that mortgaged its future on toxic loans.
"The crisis definitely happened on their watch," said Kenneth Rogoff, a professor of economics at Harvard University who advises the Republican presidential candidate John McCain. "This is eight years into the Bush administration. There was a lot of time to deal with it."
To some extent, Bush was simply following a deregulatory pattern set by Clinton. Perhaps the most significant recent deregulation of the banking industry - the landmark act that allowed commercial banks to expand into other financial activities, like investment banking and insurance - was signed into law by Clinton in 1999.
Bush also inherited a culture of borrowing and a frothy housing market that has become "deeply embedded in the American psyche," Rogoff said. And Reinhardt said the markets seemed to be doing so well that few analysts, either in government or the private sector, had a critical eye.
"When everybody is doing better," Rogoff said, "it is difficult to see the underlying weaknesses."
Still, the White House, in the view of critics, fostered a free-market hothouse in which these excesses were able to flower. It avoided regulation of banks and mortgage brokers, leaving much of that work to the Federal Reserve, which, under Alan Greenspan, showed little appetite for regulation. By the time Bush's current Treasury secretary, Henry Paulson Jr., proposed an overhaul of regulations governing the financial sector in April, the storm was already brewing.
The administration did push hard on Capitol Hill to rein in Fannie Mae and Freddie Mac, only to find itself stymied by Congress. But the administration's intense focus on fending off what it foresaw as a looming housing crisis did not extend to the proliferation of fiendishly complex mortgage-backed securities, said Harvey Rosen, an economist who served on Bush's Council of Economic Advisers, briefly as its chairman.
"Maybe there should have been," Rosen said, "but we were focused more on the fact that if these entities just held plain-vanilla mortgage-backed securities, it was still a disaster in the making."
Beyond its deregulatory bent, some economists argue that the administration's fiscal and tax policies made the United States more dependent on foreign capital, which fueled the bubble in housing prices.
"A different Treasury would have taken a different approach," said Lawrence Summers, who served as Treasury secretary in the Clinton administration. "I don't think the economy has been well-managed, and that has certainly been crucial for the problems we're facing."
The White House and Congress wanted to make housing affordable to more Americans, and freeing up the lending markets was a way to do that. As Rogoff said, "It was a market-based way to help poor people. There was an incredible belief in free markets."
For all that faith, Bush's first two Treasury secretaries, Paul O'Neill and John Snow, came from top jobs in industry, not Wall Street. They were viewed in Washington as advocating the interests of business, and being less comfortable with the mysteries of the markets.
Neither was seen as having much influence with the White House, and the Treasury lost some of the primacy in economic policy it had enjoyed under Summers and his predecessor, Robert Rubin. O'Neill and Snow declined to be interviewed for this article.
"The primary agency responsible for keeping an eye on these things is, and should be, the Treasury Department, and I think the president erred in the first place by appointing two secretaries who had no background in finance," said Bruce Bartlett, a Republican economist who was an adviser to President Ronald Reagan and an official in the Treasury Department under President George H.W. Bush.
"If we had had a Treasury that was fully supported by the White House," Bartlett said, "and a Treasury secretary such as Hank Paulson who was really attuned to what was going on in the financial markets, maybe some of these things could have been perceived in advance."
The White House did name people well-versed in the markets to other posts, not least the chairmanship of the Securities and Exchange Commission. But Bush's first SEC chairman - Harvey Pitt, a prominent securities lawyer - was brought down by political missteps. Pitt was replaced by Donaldson, who quit in 2005.
Critics, including McCain, say the SEC has been less active under its current chairman, Christopher Cox, a former Republican congressman from California. It has spent less on enforcement and levied less in fines on wrongdoers, according to the Government Accountability Office.
"You can't overestimate what happens when you encourage regulators to believe that the goal of regulation is not to regulate," said Joseph Stiglitz, a Nobel Prize-winning economist at Columbia University.
In other areas, the Bush administration's failures seem more a case of inaction. The administration, economists said, did little to curb the practices of mortgage brokers, who are regulated by the states. But Democrats in Congress were equally to blame for this, these economists said.
"The Democrats pushed affordable housing goals, even in the face of evidence that people who got the loans shouldn't have gotten them," said Robert Litan, a senior fellow at the Brookings Institution, a research organization in Washington. "The no-money-down loans of 2005 and 2006 were a key part of the problem."
"I blame the Democrats for demanding that Fannie Mae keep buying these loans," said Litan, who was a budget official in the Clinton administration. "I blame the administration for going along with it."
White House officials note that the administration did propose reforms of real estate settlement procedures and the Federal Housing Authority, two areas it had identified as posing the greatest systemic risk to markets. Democrats in Congress, they said, blocked these efforts.
When Bush named Paulson to replace Snow in 2006, the Treasury Department finally got an expert in markets. But early on, his focus was on improving the competitiveness of the U.S. financial sector, which he feared was losing ground to Europe and Asia.
Friday, September 19, 2008
Will the bailout work?
| Analysis By Steve Schifferes Economics reporter, BBC News, Wall Street, New York |
President Bush on ''a pivotal moment'' in the US economy
The enormity of the financial crisis now engulfing Wall Street has led the Bush administration to abandon its free-market principles and announce a $500bn bail-out package to buy up distressed financial assets.
At the same time, to stem growing panic among individual investors, the Treasury also plans to offer gurantees for the $3.2 trillion in money market mutual funds, which many people had treated as cash.
The rescue plan may still face significant political and financial obstacles.
With Congress set to adjourn next week for the election season, time is short to work out the details of the plan and get it passed.
Congressional leaders, including many key Democrats, had already been considering such a rescue plan, and they indicated quick acceptance of the proposals.
On the sidelines, however, there is deep scepticism on both left and right - with conservative Republicans objecting to any more bail-outs, and many Democrats asking why we should help Wall Street rather than the four million people whose homes are being foreclosed, or repocessed.
And the presidential candidates, who are being left on the sidelines in the negotiations, are also reluctant participants in the process.
Both realise that a sizeable bail-out that commits the Federal government to significant new spending will severely limit their plans - either to cut taxes or to introduce a new health care plan - in the year after the election.
One model being talked about is the Reconstruction Finance Corporation introduced in the 1930s during the Depression. But it should be remembered that in 1933, President-elect Franklin Roosevelt refused to agree a bi-partisan deal with President Hoover to stave off the collapse of the entire US banking system, which shut down completely on the eve of his inauguration.
Who gains and who loses
Among the difficult questions about the rescue plan is how much it will cost the taxpayers, the banks, and the distressed homeowners.
Part of the answer is what price the US government pays for the distressed debt.
If it buys at book value, the banks will have gained and the taxpayer will have taken over the liability.
If, on the other hand, the government buys up the debt at distressed values, the government stands to gain if eventually some of the mortgage debt recovers its value.
And it is not clear how much leverage the US government will get over the banks in return for its investment.
In the 1980s Resolution Trust Company rescue, the government had the power to take over any distressed Savings and Loan bank and close it or sell its assets as necessary. T
his eventually meant that about half of the $400bn rescue package was recovered - but most of the banks closed for good.
It is also unclear how much specific benefits distressed homeowners will get.
The cost to the government could grow if tries to hold off repossessions on the 10% of all US home-owners with mortgages - but getting too tough to make sure everyone pays up could risk making the housing crisis work.
The government already has a plan to grant $300bn in extra mortgage help for households facing foreclosure, but the evidence so far is that the plan (which is scheduled to start on 1 October) was looking still-born, as private sector mortgage holders were resisting taking the 10% loss the government was insisting on.
Long term economic damage
The government hopes that its big new package will restore confidence in the markets and encourage banks to start lending again to individuals and businesses.
Certainly, the prospect of the credit markets seizing up further could have sent the US economy into a tail-spin.
But it is still not clear that the package will be big enough, or implemented quickly enough, to reassure private and commercial investors who are now very worried by the uncertainty over the future of the financial sector.
Tightening of credit for both wholesale and retail borrowers is likely to continue, as markets adjust to the higher risks they perceive.
And while the move might provide temporary relief to the US economy, they also pose some long-term challenges.
The increased borrowing by the government will have to be paid for - and with the growing reluctance of foreigners to hold US debt, it will ultimately mean higher savings, and less spending, for the US economy.
The cost of the rescue could also eventually push up the cost of borrowing as the Federal deficit grows, and thus weaken the long-term prospects for the economy.
And the higher debt could also eventually weaken the dollar, forcing the Fed to intervene to raise rates to prevent a sharp fall.
Although these are big risks, the shattering of confidence is the biggest problem.
And if these measures fail, it will fall to the next president to craft a package to rescue the economy.
Bush hails financial rescue plan
Bush on ''a pivotal moment'' in the US economy
The US is set to take "unprecedented measures" to tackle the crisis gripping US financial markets, President George W Bush has said.
But he warned the moves, which include spending of billions of dollars to buy up bad debts, would risk "a significant amount" of taxpayers' money.
Legislation for the plan will be pushed through as soon as possible, Treasury Secretary Henry Paulson said.
The US took action after a week of turmoil on global money markets.
Stock markets around the world have endured a roller-coaster week as traders and investors fretted about the fall-out from the current credit crisis:
- Central banks around the world pumping billions of dollars of extra funding into money markets on Thursday and Friday to ease the liquidity crisis
- The US announcing further measures to shore up the markets, including a ban on short-selling and guarantees to temporarily insure money market deposits
- Stock markets around the world rallying after a dire week on news of the US rescue plans - with the UK's FTSE 100 closing with its biggest one-day gain
- Stock markets in Russia temporarily suspended again on Friday at the end of a week of wild swings and stop-go trading
- Banking group Morgan Stanley reportedly looking for a partner amid concerns about its future
Recovery plans
A "bold" move was needed to restore the financial system's health, Mr Paulson insisted.
He added the Bush administration was stepping in with a plan to remove so-called "toxic debts" from US banks' balance sheets.
While he gave few details, he said federal lawmakers would meet over the weekend to thrash out legislation for the the programme which must be "large enough to have maximum impact".
| | The Treasury and the Fed have finally realised the depth and systemic nature of the crisis John Ryding, economist |
In the meantime, he said that the government would be stepping up action to increase the availability of capital for new home loans.
Once this difficult period was over, he said, the government's next task would be to overhaul bank regulations.
President Bush said swift, politically bipartisan action was needed to keep the US economy from grinding to a halt as problems sparked by the credit crisis had begun to spread through the entire financial system - leaving jobs, pensions and companies under threat.
"These are risks the US cannot afford to take. We must act now to protect economic health from serious risk," he added.
The US is facing "unprecedented challenges and we're responding with unprecedented action", he said.
Rescue moves
Earlier in the day, the government announced plans to guarantee US money market funds - mutual funds that typically invest in low-risk credit such as government bonds and are often used by pension funds - up to a value of $50bn, in a move to further restore confidence.
| | Confidence is essential to the smooth operation of our economy President Bush |
Meanwhile, the Securities and Exchange Commission temporarily banned "short-selling" in the stocks of 799 companies. Short-selling is a form of trading which effectively bets that the value of a company's shares will fall.
Reaction to the announcements was swift on money markets across the world, with Wall Street closing in positive territory while the London market ended the session with its biggest one day gain.
"The Treasury and the Fed have finally realised the depth and systemic nature of the crisis," said John Ryding, an economist at RDQ Economics
"We believe that these actions will constitute the wider firebreak that will contain the crisis."
Criticism
However, the proposals did draw criticism from Republican presidential nominee John McCain.
"The Federal Reserve should get back to its core business of responsibly managing our money supply and inflation," he told reporters.
Meanwhile, Democratic rival Barack Obama gave his backing to plans to give the Treasury department "broad authority" to deal with the crisis.
According to President Bush action will restore confidence to the US system, and "confidence is essential to the smooth operation of our economy".
Mounting fears that the credit crisis is beginning to spread out through the financial system have rocked shares and companies recently.
Investment giant Lehman Brothers collapsed this week, rival Merrill Lynch was bought out by Bank of America, and the US government has bailed out insurer AIG with an $85bn rescue package and state-backed mortgage lenders Fannie Mae and Freddie Mac.
Wednesday, September 17, 2008
Europe and Asia see U.S. as no longer practicing what it preaches
Wednesday, September 17, 2008
PARIS: Is the United States no longer the global beacon of unfettered, free-market capitalism?
In extending a last-minute $85 billion lifeline to AIG, the troubled insurer, Washington has not only turned away from decades of rhetoric about the virtues of the free market and the dangers of government intervention, it has also likely undercut future American efforts to promote such policies abroad.
"I fear the government has passed the point of no return," says Ron Chernow, a leading American financial historian. "We have the irony of a free-market administration doing things that the most liberal Democratic administration would never have been doing in its wildest dreams."
While they acknowledge the shock of the collapse of Lehman Brothers, the bailout package for AIG on top of earlier government support for Bear Stearns, Fannie Mae, and Freddie Mac has stunned even European policy makers accustomed to government intervention in the economy.
"For opponents of free markets in Europe and elsewhere, this is a wonderful opportunity to invoke the American example," said Mario Monti, the former antitrust chief at the European Commission. "They will say that even the standard-bearer of the market economy, the U.S, negates its fundamental principles in its behavior."
Monti noted that past financial crises in Asia, Russia, and Mexico brought government to the fore, "but this is the first time it's in the heart of capitalism, which is enormously more damaging in terms of the credibility of the market economy."
In France, where the government has long supported the creation of national champions and worked actively to protect select companies from the threat of foreign takeover, politicians were quick to point out the paradox of what is essentially the nationalization of the largest American insurance company.
"Today the actions of American policy makers illustrate the need for economic patriotism," said Bernard Carayon, a lawmaker of President Nicolas Sarkozy's center-right governing party, UMP. "I congratulate them."
For the "evangelists of the market this is a painful lesson," he added. We're entering "an era where we have much more regulation and where the public and the private sector will mix much more."
In Asia, the Washington-led bailouts have stirred bitter memories of the very different approach the U.S. government and the International Monetary Fund pushed during the economic crises there a decade ago.
When the IMF pledged $20 billion to help South Korea survive the Asian financial crisis of the late 1990s, one of the conditions it imposed was that the Korean government allow ailing banks and other companies to collapse rather than bail them out, recalls Yung Chul Park, a professor of economics at Korea University in Seoul who was deeply involved in the negotiations with the IMF.
While Park says the current crisis is different - it's global rather than restricted to one region like Asia - "Washington is following a different script this time."
"I understand why they do it," he added. "But they've lost credibility to some extent in pushing for opening up overseas markets to foreign competition and liberalizing economies."
The ramifications of the rescue of AIG will be felt for years within the United States, too, not just abroad.
That's because it was a very different kind of company than Fannie Mae or Freddie Mac, which enjoyed government sponsorship as mortgage finance providers, or Bear Stearns, which was regulated by the federal government.
"This was an insurance company that wasn't federally regulated," says Gary Gensler, who served as a top official in the Treasury Department during the Clinton administration. Nor did AIG have access to Federal Reserve funds or deposit insurance, like a commercial bank.
"We're in new territory," Gensler added. "This is a paradigm shift."
AIG is also in a different league both by virtue of the breath of its businesses and its extensive overseas operations, especially in Asia.
What's more, it fell into something of a regulatory gap under the current rules.
While the company, based in New York, is better known for selling conventional products like insurance policies and annuities overseen by state regulators in the United States, it is also deeply involved in the risky, opaque market for derivatives and other complicated financial instruments, which operates largely outside any regulation.
Along with the threat to the plain-vanilla insurance policies held by millions of ordinary consumers, it was the looming threat posed by these arcane financial instruments that prompted Washington to act and bailout AIG.
Chernow, who has written extensively about the efforts of J.P. Morgan to steady the economy in 1907 before the creation of the Federal Reserve, echoed Gensler's conclusion.
"It's pure crisis management," Chernow said. "It's the Treasury and the Federal Reserve lurching from crisis to crisis without a clear statement on how financial failures will be handled in the future. They're afraid to articulate such a policy. The safety net they are spreading seems to widen every day with no end in sight."
Notes:
On Wall Street, employees brace for next disaster
By Aarthi Sivaraman
NEW YORK (Reuters) - Who's next? Hours after the U.S. Federal Reserve threw an $85 billion lifeline to American International Group Inc, Wall Street workers took little comfort from the massive rescue and instead tried to guess who would get swept away next.
Even staff at Goldman Sachs Group Inc, among the few investment banks largely unscathed by the credit crisis, signaled fear as the firm's stock plunged.
"We're all in this together," said one Goldman employee who has been with the firm for six years and currently works in its asset management unit. She declined to give her name.
"We are still concerned since we work on Wall Street. We are not secure. Nobody is secure."
Such worries had already gripped investors, who slaughtered the shares of Goldman Sachs and Morgan Stanley, who are seen as the next possible victims of a financial industry crisis after AIG was bailed out and Lehman Brothers Holdings Inc filed for bankruptcy protection.
Goldman, which made billions of dollars last year with a timely bet the housing crisis was going to worsen, fell as much as 26 percent. Morgan Stanley took a 42 percent hit.
Instead of quelling concerns, the AIG rescue seemed to have ignited fears that more bad news is to come.
At stake for tens of thousands of Wall Street employees are highly-paying jobs that help prop up New York City and the wider U.S. economy, as well as billions of dollars in personal stock wealth and bonuses that may be erased.
Across from AIG's office near Wall Street, Deutsche Bank AG employees were also fearful of a financial tsunami.
"I have not read much about us in the papers, but that makes me nervous," said one Deutsche staffer, who said she had just returned from vacation.
"I only heard all these things about AIG from last week," she added, pointing out how the global insurance giant's status seemed to have evaporated overnight.
Still, some Deutsche employees said the firm may not be in the direct line of fire.
"We are solid. We don't fool around with mortgages and double mortgages," said Juan, a Deutsche Bank employee for 14 years, who said he knew people at AIG. He declined to give his last name.
WHY AIG?
The consensus among many Wall Street workers was that the Fed was right in jumping to AIG's rescue.
"It's a good thing," said Deutsche Bank's Juan. "Otherwise they would have gone down too, like Lehman. Forty thousand jobs is too many to lose. Let's hope this is right."
The AIG bailout came just days after the Fed refused to help a struggling Lehman Brothers. Cornered, Lehman filed for bankruptcy earlier this week.
"You cannot compare the two, given our breadth of products, size of the company and how far-reaching we are," said one AIG employee in its insurance unit. "They did what was in the best interest of the economy, the best interest of the people and the best interest of the marketplace."
But some staffers were confused as to what the rescue meant for them.
"I don't know what to make of it," one AIG employee said when asked if she expected any job cuts.
At AIG's offices in downtown Manhattan, employees said it was business as usual until they heard otherwise. Many stood outside their buildings with co-workers and mulled how long the bloodshed in the financial markets would last.
"I wish this could be the end of it," said the AIG insurance employee outside the company's office on Water Street. "But realistically, it is somewhere in the middle."
(Editing by Andre Grenon)
Tuesday, September 16, 2008
IHSG dan Bayang-bayang Kemelut Bursa Global
Kompas, Rabu, 17 September 2008 | 03:00 WIB
Oleh Reinhard Nainggolan
Pasar saham Indonesia sedang ” berkabung”. Indeks harga saham gabungan atau IHSG terus melorot dan menyentuh level terendah dalam kurun waktu hampir dua tahun terakhir. Sekalipun sejalan dengan pelemahan indeks bursa global, kondisi ini mencemaskan dan tidak pernah diperkirakan sebelumnya.
IHSG yang tercatat sebesar 2.731,51 pada 2 Januari dan sempat menyentuh posisi tertinggi sepanjang sejarah bursa Indonesia pada 9 Januari 2008, yaitu 2.830,26, kini terpuruk ke level yang mengenaskan.
Pada perdagangan saham, Senin (15/9), IHSG ditutup pada 1.719,25 poin dan sedikit menguat pada Selasa (16/9) menjadi 1.735,64 poin.
Angka-angka ini menunjukkan bahwa nilai keseluruhan saham yang tercatat di Bursa Efek Indonesia selama hampir sembilan bulan terakhir telah tergerus 36,45 persen. Sebanyak itu pula nilai investasi pelaku pasar saham Indonesia telah berkurang.
Kondisi ini jauh dari perkiraan banyak pihak: mulai dari investor, analis, otoritas pasar modal, sampai pejabat negara.
Saat membuka perdagangan saham Bursa Efek Indonesia 2 Januari 2008, Presiden Susilo Bambang Yudhoyono optimistis pada 2008 IHSG akan tumbuh minimal 30 persen. Sejumlah analis bahkan memperkirakan lebih tinggi.
Optimisme itu didukung prestasi IHSG yang naik 52 persen pada tahun 2007, dan perkiraan pertumbuhan ekonomi Indonesia sepanjang 2008-2010 yang ditunjang oleh tingginya konsumsi dan proyek-proyek infrastruktur.
Namun, sejak pertengahan Januari, IHSG mulai goyang menyusul anjloknya sejumlah bursa regional dan global. Ini menunjukkan bahwa bursa Indonesia tidak berdiri sendiri, melainkan ada ketergantungan dengan bursa global, akibat semakin terintegrasinya pasar keuangan dunia.
Krisis AS
Guncangan terhadap bursa global berawal dari maraknya pemberitaan tentang krisis perumahan (subprime mortgage) di Amerika Serikat.
Pemberitaan itu semakin mengkhawatirkan ketika sejumlah perusahaan investasi dan keuangan besar di AS, antara lain Citigroup, Merrill Lynch, Bear Stearns, Bank Indymac, dan kelompok bank besar lainnya, yang tergabung dalam Wachovia Corporation, melaporkan kerugian cukup dalam, yang mencapai miliaran dollar AS.
Kerugian itu belum termaksud kerugian besar yang diderita perusahaan penyedia kredit kepemilikan rumah terbesar di AS, Fannie Mae dan Freddie Mac.
Intervensi yang dilakukan bank sentral AS, The Federal Reserve, tidak banyak membantu. Padahal, The Fed telah berkali-kali memangkas suku bunga dan menyuntikkan dana hingga ratusan miliar dollar AS ke sejumlah perusahaan bermasalah.
Krisis yang semakin meluas ditambah dengan meningkatnya jumlah pengangguran yang berdampak pada penurunan konsumsi mengakibatkan AS berada di ambang resesi.
Bayang-bayang pelemahan ekonomi global mulai muncul dan semakin kuat tatkala negara-negara di Eropa juga mengalami hal yang sama dengan AS.
Ketakutan itu cukup beralasan karena AS dan Eropa memiliki dan mengendalikan sekitar 50 persen transaksi ekonomi dunia, termasuk di pasar finansial. Rasa khawatir terhadap pelemahan ekonomi global semakin dalam ketika harga komoditas dunia terus melambung, sekalipun dalam sebulan terakhir menurun.
Dalam negeri
Di dalam negeri, kenaikan harga bahan bakar minyak (BBM) pada 24 Mei ikut memperkeruh suasana pasar saham. Tingkat inflasi pascakenaikan BBM yang mencapai dua digit (di atas 10 persen) mendapat reaksi negatif dari pelaku pasar.
Ketika harga komoditas minyak mentah dan minyak sawit (crude palm oil) sejak Agustus mulai turun, aksi jual saham tetap saja tinggi. Ini membuat banyak pihak tidak habis pikir. Seharusnya penurunan harga komoditas berdampak positif terhadap perekonomian secara umum, yang salah satunya direfleksikan oleh indeks saham.
Saat itu, beberapa kali IHSG anjlok di tengah indeks bursa- bursa regional dan global justru sedang rebound (meningkat).
”Aneh, harga minyak naik, IHSG turun. Harga minyak turun, IHSG turun juga. Maunya apa sih,” kata Alex Marco, pelaku pasar modal, dengan nada geram.
Tekanan yang dialami IHSG sedikit banyak dipengaruhi langkah investor mengalihkan portofolionya, dari saham ke investasi pendapatan tetap akibat meningkatnya tingkat ketidakpastian di pasar saham.
Aksi mengubah portofolio itu semakin marak dilakukan karena suku bunga perbankan dan kupon obligasi cenderung meningkat.
Lehman
Belum usai mencerna dengan tuntas apa yang sebenarnya terjadi, bursa global sudah kembali diguncang dengan bangkrutnya Lehman Brothers.
Kebangkrutan perusahaan sekuritas terbesar keempat di AS itu serta-merta menimbulkan sentimen negatif. Pelaku pasar pun panik dengan melepas portofolio yang diperkirakan dimiliki oleh Lehman Brothers. Bursa global pun kembali terpukul.
”Saat Lehman Brothers dilikuidasi, portofolionya akan anjlok. Makanya investor berlomba mencari tahu portofolio apa saja yang dimiliki Lehman agar bisa cepat melepasnya,” kata Kepala Riset Recapital Poltak Hotradero.
Pengamat pasar modal, Yanuar Rizky, menerangkan, kebangkrutan sejumlah perusahaan investasi dan keuangan di AS memaksa para manajer investasi di negara itu menarik portofolionya dari berbagai negara. Kebijakan yang didukung oleh Pemerintah AS itu untuk memperkuat pasar modal AS, dengan memindahkan modal ke sejumlah bursa di negara itu.
Dana hasil penjualan saham di berbagai negara, lanjut Yanuar, digunakan untuk membeli mata uang dollar AS. ”Karena itu, mengapa setelah indeks bursa negara berkembang turun, nilai tukar mata uang di masing-masing bursa itu melemah dan dollar AS menguat,” tutur Yanuar.
Pengamat pasar modal, Robert JS Nayoan, memperkirakan, kemelut di bursa global, termasuk Indonesia, masih akan berlangsung sampai batas waktu yang sulit ditentukan.
Apalagi, menurut Robert, runtuhnya Lehman Brothers bukan akhir, tetapi baru awal dari kehancuran ekonomi AS.
Dalam kondisi seperti ini, saran dari Warren Buffett, investor besar yang saat ini menjadi orang terkaya di dunia, mungkin perlu diperhatikan. Dalam sejumlah kesempatan, Buffett mengatakan, ”Selalu gunakan akal pikiran Anda. Sadarilah, bertindak berdasarkan emosi akan membunuh portofolio Anda.”
Reinhard NainggolaN
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http://entertainment.kompas.com/read/xml/2008/09/17/01003024/ihsg.dan.bayang-bayang.kemelut.bursa.global
Ekonomi Global di Tepi Jurang
Kompas, Rabu, 17 September 2008 | 00:24 WIB
Oleh A Tony Prasetiantono
Pengumuman kebangkrutan Lehman Brothers Holdings Inc, Senin (15/9), sepertinya telah memojokkan perekonomian global ke bibir jurang. Kini situasinya menjadi sangat kritis.
Bayangkan, bank investasi terbesar keempat di Amerika Serikat, yang sudah teruji selama 158 tahun, dengan aset 639 miliar dollar AS, bisa bangkrut. Padahal, bank ini pernah berhasil melewati masa- masa sulit saat terjadi kebangkrutan perusahaan kereta api di AS tahun 1800-an, depresi dunia tahun 1930-an, serta runtuhnya hedge fund Long-Term Capital Management (LTCM) pada tahun 1998. Kini semua kehebatan itu tak berbekas.
Meski krisis subprime mortgage sudah berlangsung sejak Juli 2007 dan beberapa bank investasi besar sempat mengumumkan kerugiannya, termasuk Citigroup dan Merrill Lynch, tetapi berita bangkrutnya Lehman Brothers merupakan hal yang mengejutkan. Sebagaimana kasus-kasus sebelumnya, kasus kerugian bank investasi biasanya berakhir dengan solusi bail out, yakni penyuntikan dana untuk menambah modal. Akhir-akhir ini, investor dari Timur Tengah (sovereign wealth fund) terlihat amat aktif memborong aset-aset perusahaan AS terkemuka. Investor Timur Tengah bahkan menyuntikkan dana puluhan miliar dollar AS ke Citigroup, bank universal yang menjadi salah satu ikon terpenting sektor finansial AS.
Kini, yang menjadi masalah adalah, banyak yang meyakini, kebangkrutan Lehman Brothers bukan kasus terakhir. Masih ada sejumlah kasus lain menyusul, yang antara lain disebabkan oleh risiko sistemik (systemic risk) karena Lehman Brothers memiliki banyak kewajiban kepada banyak kreditor. Seluruh utang Lehman Brothers mencapai 613 miliar dollar AS. Jumlah ini sedikit lebih rendah daripada asetnya yang diklaim 639 miliar dollar AS. Namun, apakah angka-angka itu valid? Kalaupun valid, berapa lama aset-aset itu bisa dicairkan?
Dua kreditor besar Lehman Brothers adalah Citibank dan Bank of New York Mellon, yang memegang obligasi 138 miliar dollar AS. Jika aset-aset itu tidak tertagih, bank-bank ini akan terkena dampak risiko sistemik. Seberapa parah kondisi ini akan menyeret perekonomian global ke jurang krisis atau resesi? Bagaimana implikasinya terhadap perekonomian Indonesia?
Tiga ”jurus”
Dalam menghadapi ancaman resesi ini, pemerintah federal AS setidaknya mengandalkan pada tiga ”jurus”, yang merupakan kombinasi kebijakan (policy mix) antara moneter, fiskal, dan penyelamatan korporasi finansial. Kebijakan moneter yang bisa dipilih adalah menurunkan suku bunga. Pada saat ini, suku bunga bank sentral (Fed funds rate) adalah 2,0 persen. Pilihan bagi Fed hanya dua: menurunkan suku bunga, misalnya menjadi 1,75 persen atau 1,50 persen, atau menahannya di level 2,0 persen. Kebanyakan analis ekonomi di AS, menurut survei Bloomberg, Selasa (16/9), berpendapat, The Fed cenderung akan menurunkan suku bunganya.
Memang hal ini berisiko. Inflasi year on year (12 bulan terakhir) AS kini sudah tinggi, 5,6 persen. Penurunan suku bunga akan memicu inflasi lebih tinggi. Namun, dengan harga minyak yang meluncur turun ke level 91 dollar AS per barrel, yang berarti bisa menekan inflasi, maka diduga The Fed akan memilih kebijakan ini. Penurunan suku bunga juga bisa membantu bursa saham mengalami rebound (memantul ke atas) karena dana akan mengalir dari pasar uang ke pasar modal.
Sementara itu, penurunan suku bunga AS juga akan menyebabkan mata uang dollar AS melemah terhadap euro dan poundsterling. Ini akan menjadi berita buruk bagi Eropa dan Inggris, yang selama ini sudah amat tertekan neraca perdagangannya akibat mata uangnya terlalu kuat. Mereka juga akan menurunkan suku bunga. Kawasan lain, misalnya Australia, juga menurunkan suku bunganya agar mata uangnya tidak menjadi terlalu kuat sehingga bisa memperbaiki neraca perdagangannya.
Sedangkan kebijakan stimulus fiskal dilakukan pemerintah federal melalui pengembalian uang pajak kepada masyarakat (tax refund) agar dapat dibelanjakan, sejumlah 157 miliar dollar AS. Kebijakan ini lumayan sukses, buktinya sisi konsumsi AS cukup tinggi sehingga menyebabkan pertumbuhan ekonomi masih positif (sekarang 2,2 persen), yang berarti belum resesi. Para ekonom biasanya mendefinisikan resesi sebagai situasi pertumbuhan ekonomi negatif selama dua triwulan berurutan.
Yang agak membingungkan adalah kebijakan penalangan (bail out). Menteri Keuangan Henry Paulson menolak untuk menyelamatkan Lehman Brothers karena tidak mau menginjeksinya dengan dana yang berasal dari pajak yang dibayar masyarakat. Sikap ini juga dimaksudkan sebagai terapi kejut agar pengelola bank lebih berhati-hati (Jakarta Post, 16/9). Sikap ini agak aneh karena sebelumnya pemerintah mau menalangi Bear Stearns, Fannie Mae, dan Freddie Mac. Apa bedanya? Saya menduga penyebabnya karena kasus Lehman Brothers berskala jauh lebih besar. Jika ditalangi, bisa menimbulkan moral hazard. Ini tidak baik dari sisi tata kelola perusahaan (corporate governance). Namun, membiarkan Lehman Brothers mati sungguh berisiko. Bank- bank lain bisa berguguran terkena efek domino. Bisakah Menkeu Paulson berubah pikiran?
Meredakan kepanikan
Indonesia tidak bisa menghindar dari dampak negatif kejadian ini. Karena sedikitnya 50 persen investor di Bursa Efek Indonesia adalah pemain asing, maka kepanikan di New York serta-merta juga diekspresikan di Jakarta. Akibatnya, bursa efek kita kalang kabut dan indeks harga jatuh ke 1.700-an atau kembali ke level akhir 2006.
Secara teknis, agak sulit mencegah para investor asing tidak menarik dananya dari Jakarta. Mereka sedang berusaha mengurangi kerugian di New York dengan melepas aset di Jakarta. Namun, bagi investor domestik, otoritas bursa harus berusaha meyakinkan mereka bahwa seharusnya tidak ada hubungan langsung antara kepanikan sektor finansial di New York dan di Jakarta. Karakteristik bank-bank investasi AS berbeda, mereka memiliki exposure di kredit perumahan yang kurang berkualitas (subprime mortgage) dan produk turunannya. Sedangkan bank-bank di Indonesia, tidak memiliki exposure semacam itu. Bank-bank kita lebih banyak bermain di kredit konsumen dan komersial, yang relatif lebih aman. Justru dengan harga saham yang sedang rendah di Jakarta, inilah saatnya membeli, bukan menjual.
Secara fundamental, perekonomian Indonesia sebenarnya sedang baik-baik saja meski tidak terlalu impresif. Pertumbuhan ekonomi semester I-2008 sebesar 6,39 persen termasuk baik dan di luar dugaan. Industri perbankan juga mencatat kinerja yang mengejutkan. Ekspansi kredit mencapai 35 persen, suatu level yang tak terbayangkan sebelumnya. Akibatnya, indikator loan to deposit ratio (LDR) atau rasio antara kredit berbanding dana pihak ketiga mencatat rekor tertinggi sejak krisis 1998, yakni 76 persen. Artinya, industri perbankan sedang berakselerasi.
Memang ada masalah inflasi (y-o-y) yang kini 11,85 persen. Namun, itu bisa dipahami karena kenaikan harga BBM domestik yang tak terhindarkan akibat harga minyak dunia yang pernah mencapai 147 dollar per barrel (11/7/2008). Bahkan negara Singapura pun, yang mestinya gampang menangani inflasi, ternyata gagal (inflasi 6,5 persen). Inflasi yang jauh lebih tinggi dialami Pakistan (23 persen) dan Vietnam (27 persen). Masalah lain adalah surplus perdagangan yang menipis menjadi tujuh miliar dollar AS (Januari-Juli 2008), jauh menurun dibandingkan hampir 40 miliar dollar AS di sepanjang 2007. Melemahnya surplus perdagangan ini ikut memberi andil penurunan cadangan devisa Bank Indonesia, dari 60 miliar dollar AS menjadi 57 miliar dollar AS.
Semua gambaran fundamental itu sebenarnya tidak perlu membuat panik bursa efek kita. Terlebih dengan harga minyak yang kini 91 dollar per barrel, mestinya menimbulkan optimisme bahwa ancaman inflasi dari faktor eksternal (imported inflation) dapat dikendalikan. Jadi, kunci solusi dari gonjang-ganjing ini adalah apakah kepanikan dapat dikendalikan?
Mudah-mudahan para pelaku bursa segera kembali menemukan rasionalitasnya, dan memborong kembali saham-saham yang kini berharga murah. Kerja sama bank sentral negara-negara maju untuk memasok likuiditas juga akan menjadi faktor kunci. Di Indonesia, upaya Departemen Keuangan untuk mencairkan dana Rp 120 triliun dari rekeningnya di Bank Indonesia, untuk dibelanjakan secara efektif bisa menjadi stimulus fiskal yang bisa meredakan ketegangan likuiditas, yang akhir-akhir ini sedemikian ketat.
A Tony Prasetiantono Dosen Fakultas Ekonomika dan Bisnis UGM; Chief Economist BNI
A Tony Prasetiantono
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Buntut kekacauan finansial di Asia
Lehman demise ripples across Asia financial system
HONG KONG (AP) — The Bank of Japan injected 2.5 trillion yen, or $24 billion, into money markets Tuesday as regulators across Asia moved to bolster their financial systems after the collapse of U.S. investment house Lehman Brothers.
From Tokyo to Hong Kong and Seoul, operations of Lehman's local units were suspended and governments sought to reassure investors that the toll on regional companies exposed to the bank would be limited.
"The Bank of Japan will carefully monitor recent situations surrounding the U.S. financial institutions and their influences, and will continue to strive to ensure smooth settlement of funds and maintain stability in financial markets through measures such as appropriate money market operations," Gov. Masaaki Shirakawa said as the institution pumped 2.5 trillion yen into money markets through two separate injections.
Cabinet ministers, along with the central bank chief, were also to hold an emergency financial meeting.
South Korea's central bank, meanwhile, said it was intensifying its monitoring of financial and foreign exchange markets. The Bank of Korea would provide extra foreign currency liquidity if needed via the swap market to "calm nerves of market participants," it said.
In China, the mainland central bank cut a key interest rate Monday for the first time in more than six years. Hong Kong's monetary chief emphasized plans in place to flush more cash into the banking system if necessary during a "severe crisis" in global markets.
As regional equities plunged Tuesday, Taiwan directed its state-owned banks and major funds to buy shares in an effort to stem heavy losses in the country's market.
Reeling from $60 billion in toxic real-estate debt, Lehman Brothers Holdings Inc. filed for Chapter 11 bankruptcy in New York on Monday. The storied, 158-year-old Wall Street firm — once America's fourth-largest investment bank — was unable to secure an investment partner despite a flurry of last-minute negotiations over the weekend.
Investors were also shaken by news Monday that Merrill Lynch sold itself to Bank of America Corp. for about $50 billion.
In Tokyo, the Japanese unit of Lehman Brothers requested bankruptcy protection. Regulators in South Korea, Hong Kong and Australia restricted or stopped altogether the operations and trading activities of local Lehman businesses.
As governments appealed for calm, though, there were signs of fallout from the bankruptcy.
In China, an investment fund warned of potentially heavy losses. Hua An Fund Management Co., one of a number of funds operating foreign investment funds under China's "qualified domestic institutional investor," or QDII, program, did not say how much might be at risk.
In Taiwan, the regulatory watchdog revealed that the country's institutional and retail investors held about 80 billion New Taiwan dollars ($2.5 billion) worth of exposure to Lehman investments.
Several Japanese lenders — Aozora Bank Ltd., Chuo Mitsui Trust Holdings, Inc. and Chiba Bank among them — said their actual exposure to Lehman would be little changed from their earlier projections or even smaller.
"So far, we haven't confirmed any signs that Japanese financial institutions are seriously affected," said Japanese Financial Services Minister Toshimitsu Motegi.
South Korea's financial institutions had a total of $720 million exposure to Lehman Brothers, but the amount was likely to have a minimal effect on their financial soundness, the country's financial regulator said.
In Australia, Prime Minister Kevin Rudd described Australian banks' exposure to the Lehman bankruptcy as "modest."
Among the country's financials, Australia and New Zealand Banking Group Ltd. said it had around $120 million exposure to Lehman. Commonwealth Bank of Australia Ltd. divulged about $122 million on its books.
"We are facing one of the most difficult times in international financial markets," Australia Treasurer Wayne Swan told Parliament on Tuesday.
"We don't face the same problems being experienced in the United States," he added. "But nevertheless, events on international markets are having an impact on confidence around the world."
AP writers Mari Yamaguchi in Tokyo, Kelly Olsen in Seoul, South Korea, Rohan Sullivan in Sydney, Australia, Rod McGuirk in Canberra, Australia, and Elaine Kurtenbach in Shanghai, China, contributed to this report.
http://ap.google.com/article/ALeqM5gsB5UW4UDCEstS1X_K5LuptgLnSwD937N32O0
Monday, September 15, 2008
Frantic day on Wall Street as banks fall
Monday, September 15, 2008
In one of the most dramatic two days in Wall Street's history, Merrill Lynch agreed to sell itself to Bank of America for roughly $50 billion to avert a deepening financial crisis, while another prominent securities firm, Lehman Brothers, filed for Chapter 11 bankruptcy protection.
The humbling moves, which reshape the landscape of American finance, mark the latest chapter in a tumultuous year in which once-proud financial institutions have been brought to their knees as a result of tens of billions of dollars in losses because of bad mortgage finance and real estate investments.
They culminated a weekend of frantic around-the-clock negotiations, as Wall Street bankers huddled in meetings at the behest of Bush administration officials to try to avoid a downward spiral in the markets stemming from a crisis of confidence.
"My goodness. I've been in the business 35 years, and these are the most extraordinary events I've ever seen," said Peter Peterson, co-founder of the private equity firm the Blackstone Group, who was head of Lehman in the 1970s and a secretary of commerce in the Nixon administration.
It remains to be seen whether the sale of Merrill, which was worth more than $100 billion during the last year, and the controlled demise of Lehman will be enough to finally turn the tide in the yearlong financial crisis that has crippled Wall Street. The market took a strong turn down Monday, reacting to Lehman's plan to wind down its trading operations. Questions remain whether other companies may still falter, like the American International Group, the large insurer, and Washington Mutual, the nation's largest savings and loan. Both companies' stocks fell precipitously last week.
Though the government took control of the troubled mortgage finance companies Fannie Mae and Freddie Mac only a week ago, investors have become increasingly nervous about the difficulties of major financial institutions to recover from their losses.
How things play out could affect the broader economy, which has been weakening steadily as the financial crisis has deepened over the last year, with unemployment increasing as the nation's growth rate has slowed.
What will happen to Merrill's 60,000 employees or Lehman's 25,000 employees remains unclear. Worried about the unfolding crisis and its potential impact on New York City's economy, Mayor Michael Bloomberg canceled a trip to California to meet with Governor Arnold Schwarzenegger. Instead, aides said, Bloomberg spent much of the weekend working the phones, talking to federal officials and bank executives in an effort to gauge the severity of the crisis.
The weekend that humbled Lehman and Merrill Lynch and rewarded Bank of America, based in Charlotte, North Carolina, began at 6 p.m. Friday in the first of a series of emergency meetings at the Federal Reserve building in Downtown New York.
The meeting was called by Fed officials, with Treasury Secretary Henry M. Paulson Jr. in attendance, and it included top bankers. The Treasury and Federal Reserve had already stepped in on several occasions to rescue the financial system, forcing a shotgun marriage between Bear Stearns and JPMorgan Chase this year and backstopping $29 billion worth of troubled assets — and then agreeing to bail out Fannie Mae and Freddie Mac.
The bankers were told that the government would not bail out Lehman and that it was up to Wall Street to solve its problems. Lehman's stock tumbled sharply last week as concerns about its financial condition grew and other firms started to pull back from doing business with it, threatening its viability.
Without government backing, Lehman began trying to find a buyer, focusing on Barclays, the big British bank, and Bank of America. At the same time, other Wall Street executives grew more concerned about their own precarious situation.
The fates of Merrill Lynch and Lehman Brothers would not seem to be linked; Merrill has the nation's largest brokerage force and its name is known in towns across America, while Lehman's main customers are big institutions. But during the credit boom both firms piled into risky real estate and ended up severely weakened, with inadequate capital and toxic assets.
Knowing that investors were worried about Merrill, John Thain, its chief executive and an alumnus of Goldman Sachs and the New York Stock Exchange, and Kenneth Lewis, Bank of America's chief executive, began negotiations. One person briefed on the negotiations said Bank of America had approached Merrill earlier in the summer but Thain had rebuffed the offer. Now, prompted by the reality that a Lehman bankruptcy would ripple through Wall Street and further cripple Merrill Lynch, the two parties proceeded with discussions.
On Sunday morning, Thain and Lewis cemented the deal. It could not be determined if Thain would play a role in the new company, but two people briefed on the negotiations said they did not expect him to stay. Merrill's "thundering herd" of 17,000 brokers will be combined with Bank of America's smaller group of wealth advisers and called Merrill Lynch Wealth Management.
For Bank of America, which this year bought Countrywide Financial, the troubled mortgage lender, the purchase of Merrill puts it at the pinnacle of American finance, making it the biggest brokerage house and consumer banking franchise.
Bank of America eventually walked away from its talks with Lehman after the government refused to take responsibility for losses on some of Lehman's most troubled real-estate assets, something it agreed to do when JP Morgan Chase bought Bear Stearns to save it from a bankruptcy filing in March.
A leading proposal to rescue Lehman would have divided the bank into two entities, a "good bank" and a "bad bank." Under that scenario, Barclays would have bought the parts of Lehman that have been performing well, while a group of 10 to 15 Wall Street companies would have agreed to absorb losses from the bank's troubled assets, to two people briefed on the proposal said. Taxpayer money would not have been included in such a deal, they said.
Other Wall Street banks also balked at the deal, unhappy at facing potential losses while Bank of America or Barclays walked away with the potentially profitable part of Lehman at a cheap price.
For Lehman, the end essentially came Sunday morning when its last potential suitor, Barclays, walked away from a deal, saying it could not obtain a shareholder vote to approve a transaction before Monday morning, something required under London Stock Exchange listing rules, one person close to the matter said. Other people involved in the talks said the Financial Services Authority, the British securities regulator, had discouraged Barclays from pursuing a deal. Peter Truell, a spokesman for Barclays, declined to comment.
Lehman said early Monday it had filed a Chapter 11 petition with the U.S. bankruptcy court in what was the largest failure of an investment bank since the collapse of Drexel Burnham Lambert 18 years ago. Lehman's subsidiaries were expected to remain solvent while the firm liquidates its holdings, people close to the deal said. Under this scenario, a group of banks have tentatively agreed to provide a financial backstop to assist in an orderly winding down of the 158-year-old investment bank. Such an agreement could expose those banks to losses on Lehman's assets.
Herbert McDade III, Lehman's president, was at the Federal Reserve Bank in New York late Sunday, discussing terms of Lehman's dissolution with government officials. The Fed was expect to play a supporting role in the process by temporarily accepting lower-quality assets from banks in return for loans from the government.
Lehman's filing is unlikely to resemble those of other companies that seek bankruptcy protection. Because of the harsher treatment that federal bankruptcy law applies to financial-services firms, Lehman cannot hope to reorganize and survive. It was not clear whether the government would appoint a trustee to supervise Lehman's liquidation or how big the financial backstop would be.
Lehman has retained the law firm Weil, Gotshal & Manges as its bankruptcy counsel.
The collapse of Lehman is a devastating end for Richard Fuld Jr., the chief executive, who has led the bank since it emerged from American Express as a public company in 1994. Fuld, who steered Lehman through near-death experiences in the past, spent the last several days in his 31st floor office in Lehman's midtown headquarters on the phone from 6 a.m. until well past midnight trying to find save the firm, a person close to the matter said.
The weekend's events indicate that top officials at the Federal Reserve and the Treasury will take a harder line on providing government support of troubled financial institutions.
While offering to help Wall Street organize a shotgun marriage for Lehman, both the Fed chairman, Ben Bernanke, and Paulson had warned that they would not put taxpayer money at risk simply to prevent a Lehman collapse.
The tough-love message was a major change in strategy, but it remained unclear until at least Friday whether the approach was real or just posturing. If the Fed was faced with the genuine risk of another market meltdown, analysts said, it would be almost duty-bound to ride to a rescue of one kind or another.
What few people anticipated was that the Treasury and Fed officials might reach for an even broader strategy.
"They were faced after Bear Stearns with the problem of where to draw the line," said Laurence Meyer, a former Fed governor who is now vice chairman of Macroeconomic Advisors, a forecasting firm. "It became clear that this piecemeal, patchwork, case-by-case approach might not get the job done."
At first glance, the new strategy by Paulson and Bernanke represents a much purer and tougher insistence that Wall Street work out its own problems without government help.
But that is only the first glance. If Bank of America acquired Merrill Lynch, its capital reserves would immediately fall below the minimum requirements for bank holding companies. Federal regulators, including the Federal Reserve, would have to show lenience for as long as it took the capital markets to regain their confidence — which could be quite a while.
And Merrill Lynch is hardly the only troubled financial institution on the horizon. Administration officials acknowledged this week that more bank failures were inevitable, and the main protection for depositors — the Federal Deposit Insurance Corporation — is likely to exhaust the reserves it has built over the years from bank insurance premiums.
"What we need now is a systemic solution and to admit that this is an extraordinary situation," Meyer said. He said the government should go to the heart of the crisis — the mortgage market — and start buying mortgage-backed securities in a broad rescue.
That is similar to an approach urged by Alan Greenspan, Bernanke's predecessor as chairman of the Federal Reserve. Greenspan, who has long been a staunch opponent of government intervention in the economy, said Sunday that the federal government might have to shore up some financial institutions.
"This is a once-in-a-half-century, probably once-in-a-century type of event," Greenspan said in an interview on ABC. "I think the argument has got to be that there are certain types of institutions which are so fundamental to the functioning of the movement of savings into real investment in an economy that on very rare occasions — and this is one of them — it's desirable to prevent them from liquidating in a sharply disruptive manner."
Most economists say that bailouts are often bad economic policy because each rescue tends to encourage "moral hazard" — the tendency of institutions and investors to take even bigger risks because they assume the government will rescue them, too.
Both Paulson and Bernanke worried that they had already gone much further than they had ever wanted, first by underwriting the takeover of Bear Stearns in March and by the far bigger bailout of Fannie Mae and Freddie Mac.
Officials noted that Lehman's downfall posed a lower systemic threat because it had been a very visible and growing risk for months, which meant that its customers and trading partners had had months to prepare themselves.
Outside the public eye, Fed officials had acquired much more information since March about the interconnections and cross-exposure to risk among Wall Street investment banks, hedge funds and traders in the vast market for credit-default swaps and other derivatives.
But James Leach, a former Republican congressman from Iowa and chairman of the House Banking committee, said the Fed and Treasury might not be able to avoid a broader rescue.
"The Fed's historic position is to object philosophically to a rescue role but in the end to do everything in its power to avoid anything that poses systemic risk," said Leach, now a lecturer at Harvard.
"My sense is that the systemic question will be the only question on the table if Lehman falters," he continued. "If systemic risk is considered grave, the Fed, perhaps with Treasury playing at least an advisory role, will intervene."
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