WASHINGTON The countrys key financial policymakers told lawmakers on Thursday to keep their chins up and their heads cool when dealing with the economic fallout of last weeks terrorist attacks.
Its far more important to be correct than quick, Federal Reserve Chairman Alan Greenspan said at a Senate Banking Committee hearing where he, Treasury Secretary Paul ONeill, Securities and Exchange Commission Chairman Harvey L. Pitt, and other market regulators reported on the nations financial condition.
Mr. ONeill said the economys doctors need 10 days to two weeks to do a diagnosis under the lights.
We cannot say at this very preliminary stage exactly how these events will affect the economy, he testified.
The fact that credit card activity is down 20% is not surprising, Mr. ONeill said. People stayed home and looked at their televisions.
Still, despite such numbers, the stock market drop, and a Bloomberg Blue Chip Economic Indicators survey released Thursday saying that the economy has fallen into recession, the regulators insisted that the long-term outlook is not as grim as some are making it out to be.
We must not lose sight of our longer-run prospects, which have not been significantly diminished by these terrible events, Mr. Greenspan said. The foundations of our free society remain sound, and I am confident that we will recover and prosper, as we have in the past.
Part of their optimism stemmed from encouraging economic signs that started budding before the Sept. 11 tragedies. Mr. Greenspan testified that consumer spending last month rose from the previous month, purchasing orders began to improve, and the rate of profit declines slowed. To be sure, these signs were tentative, but on the whole encouraging, he said.
Mr. ONeill, backed by Mr. Greenspan, adamantly shot down proposals by some in Congress to have the government guarantee loans made to airlines. The idea of loan guarantees makes no sense, the Treasury Secretary said.
Instead he advocated a direct cash infusion into the crippled industry. In his address to Congress on Thursday evening, President Bush was expected to ask for quick approval of his plan to bail out airlines, including $5 billion of additional cash, insurance assistance, and help in shouldering the potential liability resulting from last weeks crashes.
However, the debate over loan guarantees is expected to continue as Congress mulls options for keeping ailing companies and the economy as a whole afloat.
Senate Banking members renewed their support for letting insurance companies pool their funds to help fulfill payment obligations resulting from future major disasters. We might look at allowing insurance companies to put together a pool of their own money to deal with cataclysmic events in the future, said Sen. Phil Gramm, R-Tex.
The Senators also vetted the regulators about their efforts to freeze terrorists access to cash and the markets. They cited reports that terrorist groups had bought short on airline and insurance company shares in the days leading up to the attacks.
The regulators demurred from specifically saying what they are doing, because of national security and intelligence concerns. But Mr. ONeill said: It appears the terrorist organizations have been funded from what otherwise would be called legitimate sources, like soliciting contributions from supporters. As we chase these individuals, were going to find their assets would not be caught in the general web of money laundering procedures.
Still, we can do much better on the money laundering question then we have done over the last 25 years, Mr. ONeill said. He noted that the Treasury planned to send legislative proposals to Congress as early as Thursday to allow information to be shared across government intelligence agencies. Senate Banking Chairman Paul Sarbanes announced that he had rescheduled a hearing on money laundering for Wednesday. He had planned the hearing before the attacks, but postponed it after the terrorists struck.
None of the regulators or lawmakers Thursday expressed concern or asked questions specifically about the banking systems health or its ability to function during the crisis. Mr. ONeill reminded lawmakers that last week the federal bank, thrift, and credit union regulators issued guidance to their regulated institutions requesting that they undertake prudent efforts to work with customers affected by Tuesdays attacks, or by resulting delays in mail delivery.
These efforts include waiving late payment fees, extending loan terms, restructuring debt obligations, and easing credit terms where a customer has a demonstrable need resulting from the events of Sept. 11, he said.
Sen. Sarbanes and other key members of the Senate Banking and House Financial Services Committees said they agreed that Congress should move slowly and deliberately in crafting an economic recovery plan.
Its better to have it right than fast, said Sen. Christopher Dodd, D-Conn. Thats wise counsel for lawmakers, who often find it hard to sit back and wait a little while.