Clark,
[Warning, this gets a little long and rambling.]
I don't know, Yergin's article is reasonable, but superficial. He says things like "It has turned out that the national systems did not have the institutional capability -- or sufficient levels of knowledge or independence -- to cope with the rapidly mounting flood of funds." Well, yes, but it wasn't a "mounting flood of funds", it was a mounting flood of debt based on valuations that were absurd or on straightforward corruption. When he goes on to say "Asian countries failed to comprehend the scale of debt or to properly gauge the risks", well, true in a way, but when the real estate market in Tokyo was valued at the real estate values the entire US, and loans were made based on those valuations, surely it didn't take a genius to properly gauge the risks involved in that; plenty of people pointed it out at the time, gawking in amazement.
Then near the bottom he says, "And what are needed, beyond the emergency meetings, are concrete measures that incrementally rebuild confidence. Such measures would include reforming and repairing financial institutions (as Korea is swiftly doing, and as Japan, the world's second-largest economy, is not)"; well, LG Semicom and Hyundai were ordered by the Korean goverment to merge their semiconductor units. This is an example of the Korean "understanding" of capitalism and free markets. The two companies have distinctly different cultures, have not been able to agree on how to value their respective divisions, and squabble incessantly over who will get to rule the roost in the endtime. What a surprise. This is the country whose finance minister said last winter when they were desperate for cash from the IMF, "We don't need lectures from the West, we just need your money", and then blamed the Taiwanese chip foundries for the DRAM glut that both countries (I do not mean "companies" here) helped to create. What a guy.
Then in the last paragraph, he says "Certainly what also is required is a better understanding of how the new global financial system works. Very few knew in advance how unforgiving its new rules could be." Actually, I think the rules governing what he calls the "new" global financial system aren't any different from the rules governing the "old" financial system. And anyone who has studied history knows how "unforgiving" these rules can be. If you build capacity endlessly without regard to demand, guess what, shock, eventually you will have a glut. If you lend money to someone who builds a factory that will feed that glut, or will be hopelessly inefficient (or never does anything to actually meet a need that someone will pay for), or to build an office building like the Twin Towers that is totally unnecessary, guess what, you will have another non-performing loan in the ripeness of time. And if you sell a product below your cost of producing it in order to gain market share, guess what, you will not make up the losses with added volume, you will go broke unless a bank or a goverment gives you more money.
His last words are noble indeed: "And, at bottom, what is critically needed is honesty -- in the processes by which markets work, about the current situation and about the seriousness with which it will be met.... The ''triumph of the market'' is over. The testing of markets is here." Well, yes, we always need honesty, especially in goverments which regulate the private sector. I agree with that. But capitalism's claim--at the extreme, at least--is that honesty isn't even really necessary if you allow "Mr. Market" free reign, since Mr. Market will always reward the efficient producer, the one most in touch with the reality of what people want, how to produce it, and how to get it to them. That proposition isn't really being tested here, because the Asian markets have not been free. Not only in the sense of free trade, but also in the sense of true private investment. And until the governments really learn about that, and something about how government policies can promote real investment and internal economy building, this crisis will continue. Which could be for a long long time.
Sorry for the length of this. Hope I was at least mildly articulate, I'm not even going to reread this thing.
s.
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