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To: Terry Rose who wrote (16859)	8/29/1998 1:23:00 AM
From: Gary R. Owens	Respond to of 116822

HM Jan 10 Calls for 2.50 206.7.107.6

To: Terry Rose who wrote (16859)	8/29/1998 2:14:00 AM
From: Alex	Respond to of 116822

WALL ST. WOES TEMPT WASHINGTON TO RIG THE MARKET By JOHN CRUDELE ------------------------------------------------------------------------ IS it time to rig the stock market? Somewhere in Washington right now you can bet there is an official who is thinking about such an outrageous move. And if the market's problems persist for a couple of more weeks, that idea might even start to sound less onerous. Then, if the investing public begins to panic and Wall Street scores some really impressive setbacks (not a mere 357-point Dow drop like yesterday) the notion of the government's rescue of the market might really gain some momentum. The clincher, I believe, will come when the political woes in Washington increase. The massive problems Bill Clinton will face when Ken Starr issues his report to Congress next month will pile on top of Asia's problems, and Russia's woes, and the Argentina's crisis, and ... well you get the idea. Suddenly we could be facing the economic equivalent of a national emergency. People will be begging Washington to do something. People will want Washington to step in and put some sanity back into a stock market that has been insane for a decade. And if the U.S. government does interfere it will be committing one of the biggest mistakes in the history of our free enterprise system. America will never be the same. Is the idea of rigging a stock market really that insane or even original? The government of Hong Kong has openly been rescuing its market for about two weeks now. It says the move was taken to head off an attack on its currency by speculators. Hong Kong's action is in the open. And the government seems proud of what it has been doing. The government of Japan, as most people know, had been steadying its equities market for years. The good news is that the action resulted in very high equities prices. The bad news is that the stock market bubble couldn't be sustained and that country, despite its very high savings rate, is now in its worst economic slump - ever. Some strange things have been happening in U.S. markets lately as well. Anytime prices are down substantially, there are mystery rallies. Yesterday, for instance, the Dow Jones industrial average staged massive 100-point rallies twice that didn't hold. The same thing happened on Wednesday when a 135-point drop was turned into a manageable loss of just 79 points. This sort of thing has been happening regularly. Is Washington already intervening in the market? Probably not. The better bet is that a bunch of hedge funds with their necks out this far because of investments in Russia and around the globe decided that they couldn't afford to sustain additional losses in their U.S. stock portfolio. So they did what any other panicked investor with a few billion dollars on hand would do - they bought a thousand Standard & Poor's 500 futures contracts and turned Wall Street around. With these new-fangled securities it really is that easy. So why hasn't Washington thought of it? Glad you asked. Actually, a guy named Robert Heller once proposed just that - rigging the stock market in times of emergency. Lest you think Heller is some sort of Communist trying to undermine our free market system, let me quickly explain that he is a former governor of the Federal Reserve Board who made his suggestion a few months after stepping down from that post in June of 1989. Heller felt rigging the market would work much better than the traditional Fed methods of manipulating the market, specifically lowering interest rates and reducing margin requirements for buying stock. I've quoted this before, but here is what Heller suggested in an article published on the op ed page of the Wall Street Journal on Oct. 27, 1989: "Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thus stabilizing the market as a whole ... The stock market is certainly not too big for the Fed to handle." Heller had modest goals, which could easily be made aggressive in the hands of the wrong people. "The Fed's stock market role ought not to be very ambitious. It should seek only to maintain the functioning markets - not to prop up the Dow Jones or New York Stock Exchange averages at a particular level." Because of the timing of that suggestion, you have to figure that Heller didn't keep the idea to himself as he was sitting in on his last few Fed meetings. The stock market, you'll remember, had a rough time in '89 and Heller and his colleagues at the Fed were probably spending a lot of their spare time brainstorming about avoiding a recurrence of what happened in 1987. So what conditions will make the idea of rigging the market seem attractive? First, it'll have to be a last resort. The kind used only when I start getting frantic calls from my mother about the market. (She hasn't called me yet.) And that day probably won't come until some other crisis adds to the woes already created by Russia, Japan or any other country foolish enough to be waiting for the tapped-out West to bail them out. My pick is for the final straw crisis is still Bill Clinton, a report on whose, ahem, indiscretions I'm hearing will be coming sooner than expected. nypostonline.com