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

To: Bill Ounce who wrote (7601)	12/1/1998 1:15:00 PM
From: Bill Ounce	Read Replies (1) \| Respond to of 9980

pointer to George Soros article Message 6627796 Includes several mentions of the dangerous precedent Malaysia has established by its defection from the International free-market. excerpt: Prosperity In Peril ------------------- [...] There comes a point when distress at the periphery cannot be good for the center. That point was reached with the meltdown in Russia in August of this year. I have three main reasons for saying so. First, the Russian debacle has revealed certain flaws in the international banking system which had been previously disregarded. In addition to their exposure on their own balance sheets, banks engage in swaps, forward transactions and derivative trades among each other and with their clients. These transactions do not show up in the balance sheets of the banks. Swap, forward and derivative markets are very large and the margins razor thin; that is to say, the value of the underlying amounts is a manifold multiple of the capital employed in the business. The transactions form a daisy chain with many intermediaries, and each intermediary has an obligation to his counterparts without knowing who else is involved. This sophisticated system received a bad jolt when the Russian banking system collapsed. Russian banks defaulted on their obligations, but the Western banks remained on the hook to their own clients. No way was found to offset the obligations of one bank against those of another. Many hedge funds and other speculative accounts sustained large enough losses that they had to be liquidated. Normal spreads were disrupted and professionals who arbitrage between various derivatives, i.e., trade one derivative against another, also sustained large losses. The disruption culminated with the forced rescue of Long-Term Capital Management, whose failure could have precipitated the breakdown of the international banking system. [...]