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Illuminating articles on financial mania
on 26 June 2009
Michael Lewis, author of Liar's Poker, an account of Wall Street in the 1980s, has edited this fascinating collection. The articles are by Joseph Stiglitz, Jeffrey Sachs, Paul Krugman, Robert Shiller, Lester Thurow, the Economist, the New York Times and Lewis himself, among others. They look at the US stock market crash of 1987, the 1997 Southeast Asia crisis, the 1998 collapse in Russia, the dotcom bubble bust of 2000 and the crash of 2007.
Throughout, City of London and Wall Street traders were `making a fortune from the misery of others', as Lewis noted. The IMF made things worse by always forcing countries to cut spending and raise taxes. In 1997-98, it told Brazil and Russia to defend their currencies and raise interest rates (which benefited Wall Street, if not Brazil and Russia). Stiglitz concluded, "capital market liberalization ... is dangerous. It was not an accident that the only two major developing countries to be spared a crisis were India and China. Both had resisted capital market liberalization. Yet today, both are under pressure to liberalize."
In 1998 short-term money panic, ironically, destroyed the hedge fund Long-Term Capital Management. But the US government vetoed proposals to curb speculation, improve debt restructuring and restrict bank secrecy.
Stiglitz wrote in July 2007, "the fact that so many countries hold large reserves means that the likelihood of the problem spreading into a global financial crisis is greatly reduced." Wrong, Joe - capitalism isn't that rational.
The City, like Wall Street, is a casino. US credit agencies rated bonds using a formula called - appropriately - the Monte Carlo simulation. The City's only purpose is to make money for its members. Its speculators make their profits by taking wealth from savers and investors and gambling with it.
The City serves no any wider public, social or economic purpose. Its claims to place resources where they maximise growth are bogus.