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To: KM who wrote (68662)	10/1/1998 7:22:00 PM
From: Mohan Marette	Respond to of 176387

Herd mentality on the way in and on the way out,exaggeration I think so. Trufflette: Hope this answers your question to some extent. ===================================================== Thursday October 1, 6:31 pm Eastern Time Summers says market reaction to Asia exaggerated WASHINGTON, Oct 1 (Reuters) - Markets have overreacted to the Asian economic crisis and to the threat of economic contagion in their bid to shed risk, Deputy Treasury Secretary Lawrence Summers said on Thursday. ''Markets' tendency to excess is age old,'' he said in prepared remarks to the World Economic Development Congress focusing on efforts to calm uneasy global markets. ''When we have now seen withdrawals of capital of more than 10 percent of GDP in the case of several Asian economies, and a doubling or more of bond spreads in disparate markets, it is difficult to believe that the contagion and generalized flight from risk has not been exaggerated,'' Summers said. Summers said Japan, which accounts for two-thirds of the Asian economy, has a vital leadership role to play. He said it was ''especially critical'' that Tokyo swiftly use public money to bolster its ailing banking system so that it can supply credit. A text of Summers' speech was made available ahead of delivery to the seventh annual World Economic Development Conference on the global economy. In addition, he said European Union members, just coming into a period of strong growth, should ''seize the baton of supporting regional and global growth'' by following policies to spur European consumer demand. Summers said Asia's woes were not -- as some critics maintain -- made worse by stringent policies imposed as conditions for receiving loans from the International Monetary Fund. In fact, countries like the Philippines, South Korea and Thailand that followed IMF policies show signs of returning to stability, he said. He repeated that it was in the U.S. interest to back new funding for the IMF. The Senate has voted for about $18 billion of funds for the international lending agency but the Republican-dominated U.S. House of Representatives is balking at it. Summers said the United States was working closely with other Group of Seven industrialized countries to foster policies that promote global growth. Finance minsiters from the G7 -- the United States, Britain, Canada, France, Germany, Italy and Japan -- will hold talks this Saturday in Washington. Summers' remarks about an exaggerated reaction to global risk echoed those made earlier in New York by Treasury Secretary Robert Rubin, who warned a ''herd mentality'' among investors was aggravating the difficulty in settling conditions. ''Just as...there was a herd mentality on the way in...I believe there is a herd mentality with respect to the withdrawal of capital not only from emerging markets but from many asset classes,'' Rubin told reporters after a speech on the global economy to the Conference on the Americas.