Loose Words Can Sink Markets
Oct. 29, 1997
WASHINGTON (AP) _ In times of stock market dives, there's not much political leaders can say to make matters better. They just have to be careful not to make things worse.
Offhand comments in October 1987 by then-Treasury Secretary James A. Baker III and by then-SEC Chairman David Ruder may have contributed to the magnitude of that market plunge.
President Clinton confronted this predicament Tuesday by focusing on the overall health of the U.S. economy and sidestepping the stock market's record 554-point plunge of the day before.
``I think it neither prudent nor appropriate'' for a president to comment on daily or hourly movements of the market, Clinton said even as U.S. stocks were roaring back from Monday's downdraft.
The Dow regained 337 points Tuesday after three straight days of losses.
Clinton left most of the explaining to Treasury Secretary Robert Rubin, who maintained that U.S. economic fundamentals remained strong.
On Capitol Hill, congressional leaders were also treading carefully as they awaited Fed Chairman Alan Greenspan's testimony today before the Joint Economic Committee.
Senate Minority Leader Tom Daschle, D-S.D., was even cautious on the subject of Greenspan.
``I want to lower expectations,'' Daschle told reporters. ``I don't think we ought to be saying it all rests _ the weight of the world and all the economic projections for the next three quarters _ on what Alan Greenspan's going to say.''
Markets hang, of course, on every word Greenspan utters.
His musing last December over ``irrational exuberance'' sent shivers along Wall Street. And his comments earlier this month that the economy was on an ``unsustainable track'' sent stock prices slumping temporarily.
Greenspan, of course, gets high marks from nearly everyone for his calming words _ and easing of credit _ in the 1987 stock market plunge.
But not all lawmakers are Greenspan fans.
As the market was tumbling Monday afternoon, Sen. Tom Harkin, D-Iowa, was waging a one-man filibuster against two Clinton Fed nominees: Michigan economist Edward M. Gramlich and New York banking consultant Roger W. Ferguson Jr.
Harkin asserted that Greenspan was keeping interest rates higher than necessary, given the strong economy, and was hinting at more increases if labor costs escalate. Greenspan's policies ``are destroying the broad middle class in America,'' Harkin told a nearly empty Senate chamber.
To Senate Majority Leader Trent Lott, R-Miss., Harkins' harsh words and delaying action against the two Fed nominees _ which could put confirmation votes off until next year _ is ``not wise to do, particularly in light of the shakiness of the stock market.''
Meanwhile, the No. 2 Senate Republican, Majority Whip Don Nickles, R-Okla., viewed the market gyrations as an opportunity to put in a plug for Clinton's embattled proposal for ``fast track'' trade negotiating authority.
Congress is sending ``the wrong signals'' to financial markets by delaying a vote until next year, Nickles said. Republicans generally support the measure, but Democratic backing is slight.
Political leaders and their spokesmen are mindful of the ever-present possibility that verbal gaffes can provoke a deeper decline or halt a rebound.
``We want everyone just to take a deep breath and think about where we are,'' White House press secretary Mike McCurry said Monday. ``So let's just be calm and reasonable.''
During the Oct. 19, 1987, Dow plunge of 508 points, then-SEC chief Ruder's comment to reporters that trading might be halted was widely believed to have led to further panic selling.
And Baker, then the Treasury secretary, made pointed criticism of interest rate increases in West Germany the weekend before. Many analysts contend those remarks further unnerved investors.
Sen. Phil Gramm, R-Texas, chairman of a Senate subcommittee that oversees financial institutions, told reporters his instincts as a former economist were never to make stock market predictions.
But Gramm had one anyway: ``Five years from now, Americans will look back at yesterday (Monday) and say, `I wish I'd bought.'''
House Majority Leader Dick Armey, R-Texas, another former economist, had an even flatter take on the subject: ``These things happen every now and then.''
EDITOR'S NOTE _ Tom Raum covers national affairs for The Associated Press and frequently reports on economic issues.