Asian smiles
New York Times 98-09-29 (excerpts)
In Asia, which has been scolded and sermonized by the United States over its economic policies, there is a sense of grim satisfaction at the near-collapse of Long-Term Capital Management LP, and at its $3.5 billion rescue by a team of banks and brokerage firms.
Business leaders here noted that after prodding Asian governments from Japan to Indonesia to increase the openness of their financial institutions, the United States was bushwhacked by the calamitous losses at one of its own big hedge funds. And after urging Asia not to bail out its sinking banks, the United States did something suspiciously close to that with Long-Term Capital.
Although the rescue money was put up by banks rather than taxpayers, the bailout was engineered by the Federal Reserve Bank of New York.
"It showed us that the Americans could easily ignore their own principles," said Tadashi Nakamae, a prominent economist and president of Nakamae International Economic Research in Tokyo.
American policy makers and economists have regularly declared that Asian countries would rebound more quickly from the economic crisis if they allowed at least some of their troubled banks to fail. By pumping money into the financial sector, the American experts warn, the Asian countries are simply delaying the cleansing change that their economies must undergo.
Now, with Long-Term Capital, American regulators faced the same question of whether to allow a major financial player go belly up. Some experts here are unsympathetic to the argument that a bankrupt Long-Term Capital would have unhinged financial markets around the world.
"Of course, if LTCM fails, there would be a lot of negative chain reactions," Nakamae said. "But to me, that has nothing to do with systemic risk. It is simply a failure of the speculative chain."