U.S. Must Save Bank System, Argentina Ex-Governor Blejer Says

By Brian Swint and Paul George

Sept. 24 (Bloomberg) -- Mario Blejer, governor of the Argentinean central bank following the 2001 default and a former Bank of England official, said that U.S. authorities must be prepared to do anything to save the banking system.

``We learned the lesson that was it crucial to take every single measure necessary to save the financial sector, and it's important to save the financial sector at practically any cost,'' Blejer said today on Bloomberg Television. ``Later on you can correct problems of moral hazard, of fiscal imbalance.''

U.S. Treasury Secretary Henry Paulson has asked Congress for $700 billion to stem the financial crisis by purchasing devalued securities a week after Lehman Brothers Holdings Inc. filed for bankruptcy. Some lawmakers weren't persuaded in testimony yesterday, arguing that the legislation doesn't allow for enough oversight and that taxpayers would take on too much risk.

``Allowing the financial sector to collapse would take decades to rebuild,'' Blejer said in the interview. ``This is the lesson and this is what American authorities are trying to do now, maybe a little late.''

Blejer was director of the Centre for Central Bank Studies at the Bank of England and an adviser to Governor Mervyn King on financial stability until the end of March.

He ran Argentina's central bank for six months until June 2002. During his term, the then President Eduardo Duhalde devalued the currency, forcibly converted U.S. dollar bank savings and loans into pesos and struggled to find creditors after defaulting on $95 billion of bonds.

Global Role

Blejer said today that all countries must also play a role in stemming contagion from the financial crisis.

``If Europe relies on the U.S. to fix the problem, they are relying on something that's out of their control,'' he said. ``Measures have to be taken as soon as possible everywhere to avoid the spreading of these problems.''

Blejer acknowledged that measures to keep the financial system running and banks lending to each other may also cause damage themselves.

``When confidence starts returning to the market, you know the fire is out,'' he said. ``But as you know in a fire, most of the damage comes from the water. And in this case we're talking about liquidity. We have to be careful. But the right thing to do now is to put down the fire.''

To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net; Paul George in London at paulgeorge@bloomberg.net