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To: pbull who wrote (12894)	4/21/2001 10:37:37 PM
From: T L Comiskey	Read Replies (1) \| Respond to of 13572

from the q thread......... Fed Eases After Telecom Defaults -- Coincidence? By Jennifer Ablan What did Alan Greenspan see in his crystal ball that impelled the Federal Reserve to shock the markets last week with the fourth half-percentage-point short-term rate cut this year? That was the question on the inquiring minds of economists, who failed to discern any new economic number that would stir the monetary authorities to act when it seemed certain policy was on hold. What should have been apparent was the mounting toll of defaults and bankruptcies in the telecommunications industry and the growing crisis in the California economy owing to the power fiasco and the high-tech debacle. Plus, there looms a strike by Hollywood writers and actors, a potential boon to the culture, but a bane to the Golden State's teetering economy to the tune of $6.9 billion, according to one estimate. If Greenspan & Co. aren't worried about all that, they should be. Telecom might not drag down the economy entirely, but it clearly poses the single greatest credit risk to the financial system. That was emphasized by last week's bankruptcy filing by Winstar Communications after the it missed a $75 million debt payment to Lucent Technologies. The daisy chain of debt extends to other companies that do business with Winstar. Advanced Fibre Communications, according to a Dow Jones Newswires article, said it couldn't recognize $10 million in revenues from sales and products and services to Winstar, one of its biggest customers. The telecom spillover also reaches to the banks and brokerage firms that have funded the growth of the highly leveraged players in telecom. Stocks of brokers and other financial intermediaries faced losses in their junk-bond portfolios and sharp declines in underwriting revenues. In both cases, the telecommunications sector is to blame. "Bank earnings dropped sharply in the first quarter but the financial health of banks still appears strong enough to avoid a credit crunch," said a recent report by Moody's Investors Service. "Most of the credit indicators in first-quarter earnings reports nevertheless demonstrate a weakening of loan credit quality that has prompted tighter lending standards," the ratings agency added. Wall Street has made a killing underwriting stocks and bonds for cutting-edge telecom companies. But these companies, including the likes of XO Communications, PSINet, NorthPoint Communications, Covad Communications and Rhythms NetConnections have fallen on hard times as capital markets have dried up for new deals, and companies themselves have disappointed with their operating performance. That came after telecom service providers had borrowed more than $322 billion over the past three years. Months before Business Week woke up to the problem in last week's issue, colleague Jacqueline Doherty laid out the deep risks the sector posed ("Telecom Tightrope: Like real estate a decade ago, telecom threatens to topple the economy," January 8.) Prices for bandwidth -- the capacity to transmit data and voice -- dropped 50% last year and are seen headed down another 40% this year. snip Barron's Nokie next? Hear a crack in the fortress wall?