Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Robert Douglas who wrote (6434)	9/15/1998 4:39:00 PM
From: Sam	Read Replies (3) \| Respond to of 9980

Robert, Can you post a URL for Sach's article? I have to say in spite of not having read the whole article that these excerpts do not inspire me. 1. "these countries deserve the benefit of the doubt. But there is no convincing way to prove this." Well, there is no convincing way to prove it because they WERE given the benefit of the doubt for years and it has become clear in the past year that they abused that trust. Enormously. The only way to give them "the benefit of the doubt" at this point would be to make every company conform to minimally acceptable accounting standards and have quarterly reports which give an account of their finances and what they are doing. Transparency. Easier said than done, obviously. Its hard to do, in fact impossible to do completely, but it is obvious that there is a huge gap between what they report and what they do, as no one had a clue of just what kind of debt the Asian companies/countries had taken on. Neither how much nor the quality of the debt. 2. "So this free-marketeer [Milton Friedman] has long championed government-mandated deposit insurance as a protection against bank runs. We now need an international equivalent, to forestall panics in international lending." This strikes me as nonsense. Countries themselves should do this by taxing their own banks. This would slow growth, yes, it would be hard, yes, but it should be structured in a way that gives banks incentives for making responsible loans, and governments incentives for properly regulating the banks. No international body could do this. The article partly recognizes this in its next sentence ("the best idea around is that developing countries should impose their own supervisory controls") but if the money comes from an international body, the incentives for some minimal honesty would be gone. 3. "To avoid panicky capital outflows, it is best to prevent banks from exposing themselves to excess short-term indebtedness in the first place." I don't understand this--so the banks should expose themselves to long-term indebtedness, which is inherently more risky? I must be misinterpreting somehow. 4. "Even with all of the turbulence and value destruction of the past year...no developing countries are closing the doors on markets and globalisation. In Malaysia and Russia, certainly, there has been a backlash. But even there, policymakers know they cannot get by without the outside world; and they know that only markets can deliver the chance of sustained growth." Well of course they haven't "closed the door on globalisation"", they are utterly dependent on it. They haven't done the hard thing, and built up their own internal markets. That way is the long, hard, slow way to build a country's wealth (even if it is the only true way to build real wealth). Instead they tried to do it Japan's way--export their way to wealth--and thereby exposed the inherent contradictions of this economic strategy. EVERYBODY CAN'T DO THIS SUCCESSFULLY, and when too many countries try it, it MUST result in failure for those that did try it, especially when they try to finance it with debt pegged to another currency. In retrospect, it is a lunatic strategy. The last sentence--that "they know that only markets can deliver the chance of sustained growth"--strikes me as ludicrous. The "markets" can't do this if they are producing without regard to market reality, and if they are paying attention to profit but only to market share, and if they are, in any case, largely corrupt, and not actually producing anything that is truly needed. There was NO chance that, e.g., that that great symbol of cupidity the Twin Towers would EVER be profitable. That is only the "tallest", most visible example of many idiotic projects. If these governments don't adopt policies that will over time build strong middle classes in their countries (rather than just a few great fortunes), then they will continue to have severe problems. And so, eventually, will the US and developed countries (so I think, anyway, I know that Lawrence Kam disagrees with me here--he wrote about a month or so ago we can just go on exploiting LDCs without suffering political, moral and economic consequences). All IMHO, obviously. So, rip into what I wrote. What is good about this article? Regards, Sam

To: Robert Douglas who wrote (6434)	9/16/1998 1:52:00 AM
From: Stitch	Respond to of 9980

Robert, I had just read the Economist article by Sachs on the plane ride to the states. I thought it was notable in what he does not say. For example, he did not say "I told you so" though he has been a strong IMF and Camdessus critic for quite a long while now. In an article I read very early this year he as much as predicted a backlash closing of markets. But frankly I have to emit a low whistle at the thought of a G-16. It is very difficult to imagine any form of responsive consensus from such a group though I do think his point about emerging economy participation in the regulations is important. Sach's mention of Friedman's notion of deposit insurance as applied to international currency trading is not necessarily new. In fact, even Soros suggested such an idea in an interview three months ago. I believe it has much merit and hope to see some sort of consensus moving in that direction. I have always liked the idea of putting a guard rail on the cliff instead of an ambulance in the valley below. But much will have to accompany it. For example, clients will have to be rated for risk, yes? I would have enjoyed hearing Sach's address more of the details. One concern I have, frankly, is that the troubled governments may be dallying in instituting reforms as they wait to see what happens in the states. The recent willingness to interdict in markets must be viewed by the powers that chose to do so as temporary measures..surely. These are not stupid people. Right? So have they done so to buy time until the U.S. begins to feel the heat so there is a spirit of "we are all in this together" when the rubber finally meets the road at the negotiating tables? I am muchly amusing myself with this delusion tonight so please, anyone, disabuse me of it. The main argument against it, of course, is that we have the resources to wait them out. But do we? By the way, speaking of amused I thought Sach's comments about 25 year old investment bankers was extremely amusing, especially in light of the stupid, boring, meeting I had today in Orange County. But then thats another story. Its currently 10:30 at night, I have been reduced to a "Jack In The Box" supper, after a very long drive back to Ventura. I had to lash out at something and recalling Sach's comments as you did handed me the right target. Twenty-five something, Gucci'ed, suspendered (wish it was suspended), bankers that spin excel charts for two hours and say nothing gives me a hankering for a bag of "Old Nail" chaw. And an eye ball to spit at. Best, Stitch