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Jewish World Review /Sept. 29, 1998 /9 Tishrei, 5759
Ben Wattenberg
The Jerk Factor at work
It does work. The consensus at the recent International Chamber of Commerce
meeting was: Take a deep breath. The hurricane sweeping through financial
markets of so-called emerging nations will blow away, sooner or later. And
-- flash! -- it will have either a greater or lesser effect on America and
Europe!
Most important and more seriously, the forces of globalization and
resurgent capitalism are here to stay, and are good, which I believe.
Helmut O. Maucher, the President of the ICC and Chairman of Nestle,
presided. He told the audience of businessmen, bureaucrats, bankers, brokers
and bull-slingers that for companies looking toward the medium term or long
term this was the right time to pursue direct investment in battered places.
I believe that, too.
But there is a Jerk Factor to contend with, even if it is hard to pin down
precisely. It has played a big role in the current mess. Under current
policies, it would be naive to suggest that what we have now won't come
back. With some incremental reform -- which is all that is likely -- we may
hope only that it will play itself out in the future in a less malign form.
It all might be laughable were it not for that third of the world's
population that is deeply scarred by the current situation.
Now, I do not purport to be a financial expert. I do not write about hot
money, cold money and crawling pegs. But I think I can spot a jerk as well
as the next guy. And so can you.
Consider bankers. The world's greatest oxymoron may now be "prudent banker."
When a banker in an emerging country looks out his window and sees new
office buildings and new condos, without many tenants, and then loans big
money to real estate developers for yet one more office building and yet one
more condo -- that banker may be properly classified as a jerk. And just
what would you call a banker in Europe or a hedge-fund operator in America
who pumps billions into the hands of those high rollers?
Consider the financial wizards and Nobel Prize-winning economists who teamed
up to run the now-ravaged Long-Term Capital Ltd. hedge fund. Among other
shrewd plays, these geniuses invested billions of highly leveraged dollars
in Russian bonds. The bonds are backed by one of the most volatile
governments in the world, and the high leverage means that small swings in
price can wipe out a position. How to describe such wizards? It is easy to
trot out the J-word.
Not quite so simple. Were these high flyers encouraged to act irresponsibly
and foolishly? After all, the international financial community -- including
the International Monetary Fund, the U.S. Treasury, the Fed and consortia of
big banks, both foreign and domestic -- often provides soft-landings for
firms and nations deemed "too big to fail." Big losses are often cushioned
-- although not eliminated -- through loans, bailouts and generous buy-outs.
Accordingly, by lessening the risks of buccaneering buck-rakers, are these
responsible financial organizations only guaranteeing that a new generation
of Junior Js will be coming along? And how then should the responsible
financial organizations be described? As irresponsible? After the New York
Fed helped put together a bailout of LTC, the straight-shooting former
chairman of the Fed, Paul Volcker, asked acidly, "Why should the weight of
the federal government be brought to bear to help a private investor?"
(After all, a committee of bankruptcy creditors would not necessarily wildly
dump the depreciated securities, thereby causing global chaos.)
The biggest surprise, I confess, is that I am surprised by all this. After
all, there are plenty of self-deluded jerks in the world, including some
politicians, social scientists, economists and lots of just plain people.
But I thought, somehow, that people making all that money, investing all
that money that wasn't theirs, talking in such big words, with all the
discipline of the market in place, couldn't be, wouldn't be, dare not be,
first class dopes. Alas, that makes me a dope, too.
Live and learn. The remedies of choice put forth in the Geneva meeting were
logical ones. Principally, there needs to be more "transparency" in the
financial markets. Investors need to know more of what's going on. That, in
turn, should break up much of the "crony capitalism," an uptown phrase for
welfare for the rich and tragedy for the poor. Appropriately, the goal is to
fix the free market, by making it yet more free.
The Romans had the right idea: Caveat Emptor. Let the buyer beware. Jerkums
multitudinous
GENEVA, SWITZERLAND -- To an amateur at big time finance (me), two
intertwined themes, one quite surprising, emerged here about the roiling
nature of international business: It works despite jerks. (I rhyme; no
crime.)
9/24/98: American civic engagement thriving
9/16/98: Anatomy of a cover-up
9/09/98: Draft Joe Lieberman!
9/03/98: Get over it, folks
8/28/98: McGwire. Maris. Ruth. Clinton.
8/20/98: Is consuming a Big Mac eating?
Ben Wattenberg is a senior fellow at the
American Enterprise Institute
and is the moderator of PBS's "Think Tank."
Daniel Wattenberg, who wrote this week's column, writes
regularly for The Weekly Standard and is a contributing editor for
George.