Date: 1987-10-20
Speaker: ST GERMAIN (democrat)
Chamber: H

Mr. Speaker. the era of spend weeks trying to ascertainwhat Alice in Wonderland economics is over. � it is that actually drove the marketIttook a 500point drop in the stock market place of the New York Stock Exto convince a lot of people that recordbreak- change. followed subsequently by ing budget and trade deficitsmounting year otherforeign markets. to the depths after yearcan only lead to economic disas- and levels of activity that actually octers. . . curred. With these record deficits and with the P Poli ti.cally probably there is lots of economy so heavily dependent on foreign in- blame to share. Economically for tens vestors to finance the red ink. it is no surprise of . millions of Americans. and hunthat the markets are reflecting massive un- deds of thousands of investors easiness. The only real surprise is that it didnt abroad. the consequences are just come sooner. about the same: uncertainty. and in The administration has been living in an certain sets of circumstances.fear. "Alice in Wonderland" world and failed con- . " sistently to face economic realities. Economic 0 1905 platitude piled on top of economic platitude I saw some fear yesterday. for as isnt a decent substitute for economic policy. part of my activities as a member of Its been economic fantasy fed to the coun the Securities and Financial Institutry by a pleasant. wellliked President. But. the tions Subcommittee of the Committee hard facts have been ignored too long and the on Energy and Commerce I was In markets reflected this yesterday. ne aorm. I was In Many of those who play the markets can New York. I was on the floor of the well withstand the massive drops in stock New York Stock Exchange yesterday. prices. Unfortunately. in the final analysis. it What I saw as a witness to the marwill be the peoplewho can least afford to kets largest ever fall I think holds paythat will suffer much of the adverse fall- some important lessons for all of us out. people who are part of the public There will be higher interest rates. in part to debate. Over a trillion investor. dollars continue to attract foreign investors to finance were lost yesterday. Millions of dollars our huge deficits. The young couple trying to changed hands. I was a firsthand witbuy a home will see new demands for higher ness to large chunks of stock coming down payments and higher mortgage interest on the market as a result of program rates which will price many out of the market. buying and selling. The small businessman. who needs credit to I listened to several of my colleagues survive. will either find it too expensive or non- try to dissect what happened. I believe existent. Consumer interest rates. including the messages are several. credit cards. will reflect the impact. First. the marketplace worked. A Happily. Mr. Speaker. we have incorporated system designed to handle no more many -social and regulatory safeguards than. 400 million shares. designed to. through the years that cushion economic handle no more than 80 orders a downturns and even 500point drops in the second. exceeded those numbers and. stock markets. actually helped explain why what hapNot the least of -these are the safety nets pens when willing buyers. if they can that surround our financial system. The depos- find willing sellers. meet.. I I O c - t 1bei6r" 2 0. 19 8 7 - ffS 3 j The record volume of backtoback days of over 600 million shares is testimony to the foresight of the executives of the exchange. but it does not mean that they are completely prepared for the future. For 5 years we have witnessed an unabated bull market. The correction was inevitable. Yesterdays was extreme. but the marketplace making a massive correction is part of an economic assessment of our future. A third lesson to be learned is the importance or significance of rumors. the distress that was immediately imminent when the new SEC Chairman. David Reutter. simply suggested that he was thinking about closing the market spread like a prairie fire among those fighting for their financial life. All of us should learn an important lesson from political or regulatory officials speaking out of turn and for an. administration that has spoken so well of an unfettered marketplace to have one of their chief financial experts even suggesting that In the middle of what became a calamitous day I think proves to be difficult. In the 1930s we learned the lesson of the Federal Reserve Bank of New York erroneously closing its doors. That pentup demand of closing the marketplace only exacerbated the problem. The marketplace needs to work. Another lesson is that the program trading. the socalled buying and selling by computer orders happening in microseconds. flooding the market. contributed to the volatility of those exchanges. I saw one systems expert. one specialist. holding 375.000 shares to sell and not a buyer on the floor. be handed additional orders of 250.000 shares generated by an unthinking computer making that sale only that much more difficult. huge blocks of stock resulting from these computerized buying and selling depressed the ability of the market to respond. The conduct of the specialists is another lesson to learn. These folks. forced to buy on their own account when the market would not absorb the stock. are not as well capitalized as the larger brokerage firms that trade on behalf of millions of Americans. If there is a weakness in the system. the SEC must examine it and the foresight of the market executives who just a few months ago were criticized for spending millions and not knowing exactly what it would bring. the dollar fall of the 5year bull market. the Interest rate increases. the trade and budget deficits. all contribute In some synergistic way to tell us an important messageget your house in order. The trade deficit and foreign takeovers. financed by borrowed money. should be of grave concern to us. That is why we should look closely at the tax bill soon to come to this floor which will for the first time deny to American corporations the ability to finance takeovers. because as the Wall Street Journal and other editorial commentators tell us today. all takeov-. ers are not bad.-leaving open to only the foreign markets of Japan and Germany to be able to deduct Interest and thus to come in and buy American corporations at bargain basement prices. Not only mergers are bad. Learn the lessons of yesterday and today. Beware of false hopes and false -promises and understand that while the marketplace works. the world looks to us in Congress to address these problems.