And Mahathir turned out to be right. He also btw was the leader who specifically warned about terror plots to fly a plane into skyscrapers--because of a plot uncovered in SE Asia that was supposed to target what was then the tallest structure in the world, Petronas Towers.
All this stuff here is interesting because we see all these Clinton weasels defending currency shorts run by large hedge funds that are well connected to the SE Asian markets (a lot of these foreign financiers created the financial markets in HK, Singapore, Manila, KL, Jakarta, Bangkok). Like Rubin, which makes you think of his successor, Summers, who is now in the Goldman Sachs Obama White House. If a normal person wanted to 'bet against' the value of a currency he might buy gold or another currency. However, what Soros specialized in was taking huge sums of investors's money, gearing it (using it to borrow even more money), and put it into instruments designed to 'short' a targeted currency. Borrowing huge amounts of money (gearing way beyond base capital) in order to short anything is a "feedback mechanism" (to use a Soros' term) that is sure to create financial panics. That is what Soros did. That is what the Paulson guy did with G-S helping him. That is what the 'heroes' of Michael Lewis' book did. A interesting aspect of Soros' and others currency speculations is that it all seems to have re-inforced the idea that governments should never raise interest rates because this leads to 'over-valuation' of the currency which then leads to crises like the British pound crash in the early 1990s and the Asian crisis of 1997. http://en.wikipedia.org/wiki/George_Soros >>In 1988, he was asked to join a takeover attempt of the French bank Société >>Générale. He declined to participate in the bid but did later buy a number of >>shares in the company. French authorities began an investigation in 1989, and >>in 2002 a French court ruled that it was insider trading, a felony conviction >>as defined under French securities laws, and fined him $2.3 million, which >>was the amount that he made using the insider information. Punitive damages were not sought because of the delay in bringing the case to trial. Soros denied any wrongdoing and said news of the takeover was public knowledge.[25] His insider trading conviction was upheld by the highest court in France on June 14, 2006.[26] In December, 2006 he appealed to the European Court of Human Rights, claiming that the 14-year delay in bringing the case to trial precluded a fair hearing.[27]<< >>Currency speculation On Black Wednesday (September 16, 1992), Soros's fund sold short more than $10 billion worth of pounds sterling[citation needed], profiting from the Bank of England's reluctance to either raise its interest rates to levels comparable to those of other European Exchange Rate Mechanism countries or to float its currency. Finally, the Bank of England withdrew the currency from the European Exchange Rate Mechanism, devaluing the pound sterling, and Soros earned an estimated US$ 1.1 billion in the process. He was dubbed "the man who broke the Bank of England." In 1997, the UK Treasury estimated the cost of Black Wednesday at £3.4 billion. The Times of Monday, October 26, 1992, quoted Soros as saying: "Our total position by Black Wednesday had to be worth almost $10 billion. We planned to sell more than that. In fact, when Norman Lamont said just before the devaluation that he would borrow nearly $15 billion to defend sterling, we were amused because that was about how much we wanted to sell." Stanley Druckenmiller, who traded under Soros, originally saw the weakness in the pound. "Soros' contribution was pushing him to take a gigantic position."[21][22] In 1997, during the Asian financial crisis, then Malaysian Prime Minister Mahathir bin Mohamad accused Soros of using the wealth under his control to punish ASEAN for welcoming Myanmar as a member. Soros has denied Mahathir's accusations. The nominal US dollar GDP of ASEAN fell by US$9.2 billion in 1997 and $218.2 billion (31.7%) in 1998.<< http://www.streetstories.com/gs_art_obrien.html >>In early 1997, Soros' funds were shorting Thailand's currency, the baht, and >>Malaysia's currency, the ringgit -- that is, betting that the value of both >>currencies would drop. In July, Thailand dropped its defenses, devaluing the >>baht. That set off the wave of devaluations in Malaysia and elsewhere that >>marked the beginning of the current global economic turmoil. Soros said that by the time of the devaluations, his funds had become active buyers of the currencies, believing that they had already hit bottom. But that did not shield him from withering accusations, mainly from Prime Minister Mahathir Mohamad of Malaysia.<< http://bpms.moi.gov.my/index.php?option=com_content&task=view&id=10402&Itemid=79 "I am saying that currency trading is unnecessary, unproductive and immoral," Dr. Mahathir declared Saturday. "It should be stopped. It should be made illegal." Mr. Soros, who has disclaimed responsibility for Malaysia's foreign-exchange woes, called Dr. Mahathir's suggestion "so inappropriate that it does not deserve serious consideration" and the prime minister himself "a menace to his own country." "Interfering with the convertibility of capital at a moment like this is a recipe for disaster," he said. Drawn into the fracas by reporters, U.S. Treasury Secretary Robert Rubin, a former currency trader himself, defended currency trading as "integral to global trade in goods and services." ......... Dr. Mahathir also presented his theory that developed countries are conspiring to keep developing nations in their place. "Quite a few people who are in the media and in control of the big money seem to want to see these Southeast Asian countries and, in particular Malaysia, stop trying to catch up with their superiors and to know their place," he said. Their primary weapon, he said, is the international financial markets. Dr. Mahathir distinguished between exchanging currency to finance trade, which he welcomed, and "pure trade in currency as a commodity," which he condemned. But Mr. Rubin said the two are intertwined. "Speculation is part of the total activity in secondary markets," said Mr. Rubin. Exchanging one currency for another is essential if countries are to trade with each other, he argued. Speculators make a currency market larger and more liquid, and that reduces the costs of trade. "It is the kind of activity you need to do if you're going to have trade in goods." ............ Hedge funds, which can borrow and use financial derivatives to profit from falling markets, have come under blistering criticism from people like Prime Minister Mahathir for their supposed role in pushing the currencies and stock markets of Thailand, Indonesia, Malaysia and the Philippines, and the stock market of Hong Kong, into freefall. Certainly the purely profit-oriented hedge funds had little loyalty to these emerging markets. But politicians are invoking a double standard on their activity, say some foreign-exchange executives. "When things are good the countries want [the hedge funds' investment] flows and take advantage of those flows to finance their growth," says Eric Nickerson, managing director of foreign-exchange research at Bank of America in Hong Kong. "But when things turn bad and these guys leave, [the politicians] are not happy." It's a pattern that has been repeated in currency crises ever since the arrival of powerful new derivatives in the late 1980s, which allowed traders to leverage their capital many times over and make huge bets in financial markets. Derivatives are financial instruments whose value is derived from an underlying asset, such as stocks and commodities. The new financing techniques have emboldened hedge funds to exploit what they see as violations of basic economic laws: overvalued currencies, poorly regulated banking systems and inappropriately high or low interest rates. When hedge funds bet an overvalued currency will return to its natural level, then use the bank credit to force that change, the profits can be extraordinary. Of course, so can the losses. And the hedge funds aren't the only ones that speculate. Indeed, it was none other than Malaysia's central bank that lost 10 billion ringgit in 1992 (US$3.89 billion at the time), wrongly betting that the English pound wouldn't be forced out of Europe's exchange-rate mechanism. Mr. Soros has said his funds earned $1 billion taking the opposite bet. Malaysia's government has since barred the central bank from speculating in currencies. In any event, hedge fund managers and analysts contend that even the biggest of the funds, such as Quantum, simply aren't big enough to move markets as much as the politicians claim they do, although they may help initiate a trend. Mr. Druckenmiller says that almost by definition a successful hedge fund can't use its size to force a currency in one direction. "If your size drove it down, then when you get out, your size would drive it back up." Quantum took a short position in the forward market for the Thai baht in January when a colleague laid out for Mr. Druckenmiller the fundamentals of the Southeast Asian economies. (By selling forward, the currency wouldn't have to be delivered until later). They indicated that Thailand, which pegged its currency to a basket of foreign currencies that was 80% dollars, was ripe for devaluation. The ratio of loans to gross domestic product had gone from 65% to 135% over an extraordinarily short period of time, and Mr. Druckenmiller says he was convinced that once the economy started to slow, a boom-bust cycle would begin that would require lower interest rates and a lower currency. "The speculators did not cause the extraordinary boom in loans [as a percentage of] gross domestic product in Thailand [or] the incredible boom in Malaysia," says Mr. Druckenmiller. "It was, in the end, the excesses that the authorities allowed to continue that created the boom-bust conditions for which they are now paying. If these conditions had not been allowed to exist, speculators who bet on a decline in their currencies would have lost money, as they probably will in Hong Kong." A vigorous defense by the Thai central bank propped up the exchange rate and was followed by limited currency controls. But it became obvious in May that the baht wouldn't hold and local companies, in a repeat of nearly every earlier currency crisis around the world, began selling their local currency for dollars. "The locals lost confidence in their own currency," recalls a hedge-fund executive in Singapore. "Whether they got tipped off that the central bank was going to end the peg, or they just saw the handwriting on the wall ... it was the same in Sweden, in Italy, in Mexico." The result was a one-way street jammed with investors fleeing the baht. "In this region we had a market that was entirely one-directional," says a foreign-exchange executive. "Normally when a market starts to fall heavily, speculators will start to come in to buy because they see value. But in this region, speculators didn't come in at all because they knew things were screwed up." Thailand devalued on July 2. In a matter of weeks the Philippines and then Indonesia and Malaysia effectively floated their currencies. Yet the circumstances of each were different, and none was led by hedge funds, as in Thailand's case. In fact, some traders and hedge-fund executives say U.S. hedge funds and investment banks lost money when the Philippines devalued. Mr. Druckenmiller says Quantum was never short, and is currently long in Indonesian rupiah. _______________________________________________ Marxism-Thaxis mailing list Marxism-Thaxis@lists.econ.utah.edu To change your options or unsubscribe go to: http://lists.econ.utah.edu/mailman/listinfo/marxism-thaxis
