Guiding global markets
Nothing demonstrates the virtues of free-wheeling, unfettered global financial markets better than the current crisis in Asia.
George Soros recently renounced the system which made him rich, arguing that “the untrammelled intensification of laissez-faire capitalism and the spread of market values into all areas of life is endangering our open and democratic society.” And in the light of market turbulence in Asia, many have been expressing similar sentiments.
But hedge funds (such as Soros’s Quantum Fund) which can move markets with their well placed bets, have in fact all done rather badly out of the Asian turmoil. This has not prevented Mahathir Muhammad, the Malaysian prime minister, from blaming “speculators” for his woes. But there is nothing new in that. In 1993 the French government blamed Anglo-Saxon speculators for a second bout of turmoil in the Exchange Rate Mechanism which put the franc under pressure. As long ago as 1967, Harold Wilson blamed the Gnomes of Zurich for the devaluation of the pound.
When those at the centre of a crisis blame mysterious outside forces for their troubles, you can be sure that the problems lie much closer to home. Asia’s difficulties are internal: the region’s financial markets have at last blown the whistle on decades of economic mismanagement, high-level corruption and autocratic politics.
The trouble is that financial markets behave like vigilantes rather than policemen. Theirs is a rough justice. So long as the tottering edifice of the Asian economies continued to deliver rapid GDP growth, there were quick bucks to be made; so investors continued to make them. Even when everyone knows months in advance that a currency is going to collapse-as with the Thai baht before it tumbled in July-it makes sense to keep ploughing in money for high returns until the last possible moment. When that moment arrived, overseas capital flooded out.
But the markets have delivered a just verdict. You should also remember that the people behind this judgement are not irresponsible speculators. People like George Soros only make up a tiny part of the global financial markets-their power is grossly exaggerated. It is not even the overpaid young traders who call the shots; the real power lies with cautious, anonymous, middle-aged men and women running the big pension and mutual funds. Speculative hedge funds might score a few hits, but the heavy bombing is done by these long-term…