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Businessweek Archives

It's Time To Clip The Hedge Funds (Int'l Edition)

International -- Readers Report


Long-Term Capital Management's spectacular crash and subsequent $3.6 billion rescue is the wake-up call that regulators everywhere needed ("The Fed steps in: Will it work?" American News, Oct. 12). For too long, governments and regulators have ignored the activities of the so-called hedge funds. The argument that hedge funds are tightly supervised by their management and creditors lulled regulators and analysts into believing that they can be self-regulated. The truth is lenders and borrowers are too greedy and vainglorious to be left on their own.

The speed with which the U.S. Treasury Dept. has organized the rescue of LTCM's rich men's club is amazing, since it is still debating how much to contribute to the restructuring of some Asian economies, like Indonesia, where the lives of 200 million people have become intolerable.

The structural weaknesses of developing economies are no excuse for the quants to plunder at will like modern-day pirates through superior firepower. Indeed, the newly liberalized currency and stock markets of the Asian economies are no match for the quants. Having pressured these economies into liberalizing their markets, the U.S. has now abandoned them in their hour of need. Blind faith in the free-market system is wrong. Like all markets, it has to be vigorously regulated to prevent overheating, excessive leverage, antitrust behavior, and fraud. In the final analysis, the mistakes made in LTCM's case are no different from the ones the now-faltering Asian economies made. Excessive lending with insufficient collateral made on the belief that the borrower has some magical touch prove to be the undoing of lender and borrower.

Wailun Ng

Shanghai, ChinaReturn to top


Robert Kuttner's plea for controls on capital flow is right on ("When the free market is too free," Economic Viewpoint, Oct. 12). From where we sit, globalization is just neoliberal imperialism. Its hypocrisy comes into focus when one considers that it has conveniently never looked at the possibility of opening international frontiers to the free migration of workers from the countries of the Third World to those of the First.

Hanns John Maier

Sao Paulo, BrazilReturn to top


"A talk with Treasury Chief Rubin" (Special Report, Oct. 12) closes with Secretary Rubin's view that all should try to contribute to stimulating Japan's economic growth. Just as it is a known folly to print money to fuel ongoing inflation, it could be wisdom to print money to check ongoing deflation.

Perhaps the most reliable way to get the printed money into circulation would be to deposit it to the credit accounts of wounded Asian economies, with the proviso that the deposits only be drawn down to pay for imports of Japanese goods or services, thereby stimulating production and employment in Japan and in the countries benefiting from the grants-in-aid. This financing device could encourage much larger aid programs than might otherwise be provided.

Of course, the Japanese banking problems also need to be addressed. However, as the pileup of unused lending capacity in the U.S. banking system in the late 1930s demonstrated, ample credit availability will not induce people or businesses to borrow and spend unless they feel optimistic about their future and see good uses for the money.

Jetson E. Lincoln

Montclair, N.J.Return to top

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