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To: Thomas M. who wrote (9944)	10/30/1998 1:35:00 PM
From: Cynic 2005	Respond to of 86076

By George Mannes ABCNEWS.com from TheStreet.com Oct. 29 — It's impossible to predict whether the slowing U.S. economy will create a stock crash of the magnitude of 1987 or 1929. But one thing is certain: If the bottom falls out of the market, somebody will be blamed. When the markets go up, investors generally enjoy the ride; they don't complain that a particular person or group of people is behind the stock rise. If a market plummets, however, there's almost always an immediate volley of blame. “That's a tendency that's been there from medieval times,” says Randall Kroszner, an economics professor at the University of Chicago's graduate school of business. “There is always been a tendency to find a scapegoat so it's not my judgment that is called into question.” Increased Finger-Pointing The odds-on favorite for future blamestorming is the investing phenomenon called hedge funds—unregulated investment partnerships backed by institutions and wealthy individuals. Several of these usually secretive funds have recently weathered the glare of unwelcome negative publicity, after ending up on the wrong side of risky investment bets. For example, Long-Term Capital Management—the Greenwich, Conn.-based fund whose executives include two Nobel prize-winning economists—had to be bailed out by a group of investors after suffering big losses in Russian securities and other investments. Financier George Soros is shutting down a fund he runs that invests in emerging overseas markets—a fund that has lost nearly a third of its value since the beginning of the year. So far, hedge funds have evaded the cycle of scapegoating in the United States. “They're actually not being blamed for anything,” says Courtney Smith, chief investment officer of the Orbitex Group of Funds. “They're actually being blamed for being stupid and losing lots of money.” Across the Pond Overseas, it's a different story. Politicians in Japan, Malaysia and other Asian countries complain that hedge funds are responsible for steep drops in local markets and currencies. And some leaders have singled out Soros as the prince of darkness. In years past, prosecutors, the press and the public in the United States have jumped at the chance to excoriate perceived perpetrators of financial ills—and send them to jail, too. Just ask junk-bond financier Michael Milken and savings-and-loan chief Charles Keating Jr. Besides being prosecuted by the courts for their misdeeds, both were vilified in the court of public opinion as symbols of the greed and excesses of the 1980s bull market. “When markets turn down, people get into a very ugly and punitive mood,” says Ron Chernow, author of Titan: The Life of John D. Rockefeller Sr. But people choose the targets for their blame according to a certain logic. In times of crisis, they take aim at the biggest target available to them, often the largest player in the market. “The people who are glorified during the booms are almost invariably scapegoated during the busts,” says Chernow. “Bankers who had been lavishly praised for their financial genius in the 1920s, in the 1930s were known as ‘banksters,' to rhyme with ‘gangsters.'” Blaming Wall Street Behind all this is a populist streak that suspects Wall Street and its denizens as the cause of all financial misfortune, says Richard Sylla, professor of economics and financial history at New York University's Stern School of Business. He cites as an example J.P. Morgan, who was blamed for the Panic of 1907 though the evidence indicates he struggled to shore up banks at the time of the crisis. Morgan “was a controversial person. He was a larger-than-life figure,” recounts Sylla. In the minds of Americans at the time,“if anything terrible happened, he must have been involved in it.” It's not paranoid to think that a few investors might try to rig an entire market. After all, Texas oil billionaire Nelson Bunker Hunt tried to corner the silver market two decades ago (failing miserably in 1980). But that particular nightmare is getting harder and harder to sustain, Chernow says, particularly when you have more than 40 percent of American households invested directly or indirectly in the stock market. Orbitex's Smith says it's wrong to demonize particular financial instruments, such as the derivatives that were blamed for Orange County's bankruptcy in 1994. “The problem is not derivatives,” he says. “The problem is an idiot using derivatives.” Financial problems are often blamed on failing institutions—like the Knickerbocker Trust Company, whose demise was said to trigger the Panic of 1907. But, says Sylla, the problem isn't in the institution that fails; it's just the firm that happens to go bankrupt first. “The view of most financial historians is that these things expose weaknesses in the financial architecture,” he says. ”Firms that failed were symptoms of the problem. It might have been some other company the next day.” abcnews.com