C. Liu,
You forwarded the article:
> Singapore Business Times - Wed, 10 Mar 1999
>
> Bank of Thailand moves to curb baht speculation
>
> Commercial banks asked to tighten baht/dollar swap trading rules
>
> [BANGKOK]
>
> The Bank of Thailand yesterday asked commercial banks to tighten
baht/dollar swap trading
> rules to curb short-term offshore speculation in the baht.
- and it was an interesting one. To be sure currency traders can create an artificial run, etc.. They can also create an artificial reprieve for a currency such as the yen and the euro. The unwinding of short yen positions this summer in the wake of the Long-Term Capital Management debacle moved the yen up considerably and the rush to go long euros gave that currency a warm, fuzzy feeling to start out with.
The other point of the article is that the underlying market in loan swaps has a great deal to do with the make-up of the financial system in which those loans are made. Inadequate bankruptcy provisions are a millstone around the neck of capitalists throughout East Asia and very much a part of the Japanese bank debt disaster. Therefore it is not unreasonable for the value of baht-foreign currency loan swaps to change quickly when a key piece of financial legislation may not come through as anticipated. Putting a brake on short-term swaps may be appropriate, but it is no cure for a long-term problem. Currency traders did not force chaebols to encumber themselves with debt, nor did they make Malaysians and Indonesians build office space with no potential renters. The problems of East Asian economies are clearly capitalist problems caused in large measure by East Asian capitalists, albeit significantly abetted and exacerbated by Western speculators. Thai bankers are not exactly innocent peasants. They're clearly greedy, sophisticated, politically connected capitalists with as much or more power to make the rules inside Thailand as American bankers have power to make the rules inside the U.S..
It's all very well to demonize the Western powers and their henchman, whether it's the IMF or the swaps and derivatives association. Yet their message is simple: Capitalism is a dangerous game and newcomers can do well, but you'd better come to the table with real money. East Asian capitalists wrote IOU's in won, baht and ringit against real, internationally redeemable, dollars, deutschmarks and yen. They could not cover their markers and there was a big dust-up. Yet, the very East Asian politicians who now decry the currency traders were knee-deep in allowing, nay encouraging, these capitalists to peddle that paper. This is a problem of big, hegemonic capitalists versus crooked mandarins in pin-stripes. I have no sympathy for either side.
I have sympathy for the people who were hurt and are being hurt and that's why my politics are as they are. Still, I ask you, where was the money to come from if not the West? Where are the markets? Autarky for Thailand and Korea is not possible. They have to deal with the rest of the capitalist world and that means buying, selling, loaning and borrowing in Western currencies and yen. So, once again I say that absent a new way of generating more solidly-backed, internationally-tradable credit-money, the people of the second and third worlds are going to be playing poker with currency traders and Western banks.
peace