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Rubin Proposes New Market Regulations to Lessen Crises

By Paul Blustein
The Washington Post

Treasury Secretary Robert E. Rubin Thursday outlined a series of proposals aimed at making the world monetary system less prone to crises, saying, "The global economy cannot live with the kinds of vast and systemic disruptions that have occurred over the last year."

But even as Rubin spoke, the markets were going into another swoon. For the second straight day, U.S. share prices followed European and Japanese markets sharply downward.

The Dow Jones industrial average sank 210.09 points, a loss of 2.7 percent, to finish at 7,632.53. Among the big losers were the shares of major banks, brokerage houses and high-technology firms.

Part of what is fueling the global sell-off is a tightening of credit among the largest U.S. banks. The Federal Reserve released its survey of senior lending officers Thursday, which found that several of the nation's large banks have tightened their lending standards to big companies since mid-August, limiting both the size of the loans they are willing to extend and demanding higher rates and more collateral.

Global investors are fleeing stocks and shunning corporate bonds, preferring the safe haven of U.S. Treasury bonds. The yield on the Treasury's main 30-year bond fell Thursday to a new all-time low of 4.89 percent as demand soared. Meanwhile, the markets for low-rated junk

Separately, on Capitol Hill, Federal Reserve Chairman Alan Greenspan cited the "fragile" state of world markets as he defended the Fed's role in arranging a rescue of a huge speculative fund last week. He said the fund's failure could have further disrupted world markets and hurt the U.S. and other economies.

Rubin's remarks, in a speech to a New York audience, were timed to set the stage for several crucial gatherings of international economic policymakers starting this weekend.

The parleys, which coincide with the annual meetings of the International Monetary Fund and World Bank, are being watched closely for signs that the world's governments and international institutions are coming to grips with the turmoil besetting financial markets and planning ways of avoiding future crises.

In an effort to demonstrate that measures to ease the crisis were readily available, IMF Managing Director Michel Camdessus stepped up calls for widespread reductions in interest rates by the world's major central banks. His comments, at a news conference opening the IMF-World Bank meetings, echoed sentiments about the need to stimulate global growth first expressed by President Clinton in a major speech last month.

Camdessus welcomed the Fed's decision Tuesday to lower a key interest rate by a quarter percentage point and said the central bank will want to lower U.S. rates further. "I believe that there is also room in Europe for a reduction in interest rates," he said.