What a wonderfully informative program regarding world financial markets and the destructiveness of unregulated capital flows.
I recently graduated from UC Berkeley with a degree in Political Economy and we studied the Russian meltdown ( the effects of which have not been totally felt) and I was struck by the depth of the free market mythology.
I have not seen any comments regarding the Japanese meltdown and its speculative bubble that burst. A program devoted to the Japanese economic meltdown would be a great addition for Frontline
"The Crash" was a wake up call for those who will pay attention. This spiral of prosperity that the U.S. has enjoyed on the backs of smaller developing countries cannot continue.
One of the undertones of your show is that once again the powers that be will always end up manipulating financial markets to their favor. A good example of this is the current situation in the gold market where the IMF is strongly active in manipulating prices. It is also prudent to note the fact that Secretary Rubin has held and is returning to a very powerful position at Goldman Sachs a major beneficiary of the world financial situation the last few years. Could there be another depression? You bet! And Y2K may not be the fire but it could be the spark.
alta loma, ca
Frontline did a great job again -- ìThe Crashî was excellent. The show demonstrated how government meddling in the financial markets helped create the problem of currencies crashing in the first place. It was enlightening to see in the show how the government bailout of Mexico created Moral Hazard in the financial markets, which increased risk-taking by speculators.
Frontline did a great job showing the ineffectual and destructive influence of the IMF. The IMF is ineffectual because there is no need for an IMF to dispense advice to developing countries in fancy hotels over coffee. If currencies are floated -- instead of pegged or fixed - then the markets themselves would signal to developing-country governments when policies are successful or not.
The IMF is destructive because it makes matters worse. If America were sliding into a recession, no one would recommend raising interest rates, raising taxes, and cutting government spending - these three actions in 1929 magnified a recession into Americaís Great Depression. Higher interest rates and taxes discourage investment and spending, and this decreases aggregate income. But while we would never inflict higher interest rates and taxes upon ourselves, the technocrats of the IMF are inflicting that on the developing countries, which worsens their economies, and throws poor people out of work. It does not make sense to push an entire economy pushed towards failure to bail out relatively few currency speculators. Speculators know the risk, and they should be prepared to take the risk.
I was troubled by the call for greater regulation and government intervention at the end of the show. Clearly we need less technocrat meddling, and we should abolish the IMF before that organization pushes the world with the US into another Great Depression.
A remedy for global financial instabilities might be found by analogy to engineering systems. Veering mechanical systems are stabilized by dashpots or magnetic dampers, electrical sytems by resistors and chokes, and hydraulic systems by increasing the viscosity of the fluid. These remedies do not restrict movement or flow but inhibit sudden changes. The analogy in financial systems would be taxation. Let each country impose a modest 0.5 to 1% percent tax on all major (> 1000 shares/day) transactions of its currency, bonds and secuities, with a larger (5%) surtax for sudden large sales. This would inhibit speculation and panic selling but would leave legitimate investments unaffected. Speculators would fight against such a tax, but once their true role in global finance---as parasites rather than benefactors----is recognized, the peopoes and governments of the world might be able to overrule them.
Paul J. Shlichta
I watched this program the other night and found it very informative and scary.
I have an 'online brokerage account' and will be closing it after seeing all the scams that these money changers pull off on the public and the nations, will keep my money in a shoe box from now on.
Okay, just kidding but maybe not, you decide...
kansas city, mo
The critics of "The Crash" have largely focused on the absence of right wing viewpoints. But there is also a perspective to the left of Jeff Sachs that was generally ignored. The extent to which the Clinton administration has been the paid errand boy of Wall Street was underplayed. There is literally no evidence that open capital markets are beneficial to developing countries yet this is what Clinton, Rubin, and the IMF have promoted, because this is what Wall Street needs and Clinton needs Wall Street.
For solid analysis of this connection see any of the recent articles by the political scientist Robert Wade in Cambridge Journal of Eocnomics, World Development, and New Left Review.
kingston , ri
Just a tiny little addition: Antonio Gramsci noted long ago that capitalism has no social conscience. There is lots of talk about "redeeming capitalism" but it all smacks of wishful thinking. As John Le Carre' noted, "Now that communism has fallen, the next great evil humankind must confront is capitalism." There is no better evidence than the events described in, "The Crash..."
I found your report "The Crash," informative, and I commend you for the good job you continue to do.
If I may here borrow from Shakspearean literature, the first thing we must do in addressing topics like "The Crash" is clean up the pertinent language...
Thus, we speak of "free markets" when in fact there is no such thing in real life. speaking of regulated markets as free markets is as oxymoronic as speaking of "free nations." How can a nation of laws claim to be a "free nation," when the very reason there are laws and regulations presupposes that freedoms are to be restricted or curtailed? A nation of laws is a stable nation, but it is not a free nation. We speak of "commonwealth" where the wealth is not common, and we speak of "equality before the laws" when in fact we know better. The "pursuit of hapiness," anyone? Is not that like chasing a mirage? You see it but it is not there.
If free markets are to work, and risks are to be assumed, we should leave the markets to their own mechanisms, for good or for bad. The financial markets seem to be driven not on assumed risk basis, but on "guaranteed bailout" programs. Unfortunately, not everyone is bailed out.
So, George Soros and his ilk get to make another billion or two (which he really needs, right?) by putting the squeeze on some poor, impoverished nation, until everyone there is out of work and in the poor house. I wonder how he can sleep at night.
mountain view, ca
I whole heartedly agree with Steve Perfect's letter. I am a huge Frontline fan and thoroughly enjoyed "The Crash", but it is unfortunate that you didn't offer ample Neo-Classical commentary.
I agree that if governments are going to intervene to accelerate investment in developing regions, they must also build appropriate underpinnings to prevent crashes. But you can't blame capitalism and 'free flow of capital' for a situation that originated with planned measures and forced flow of capital.
I found your program on the financial crises in the emerging markets to be a bit disappointing. This is largely due to the fact that only one side of the argument was really addressed.
The fast and furious flow of speculative money may have caused serious dislocation in those economies that were affected, and your point about the innocent bystanders being the poor people in those countries was extremely valid.
However, the direction of the flows of funds was based not only on confidence and greed, but also underlying fundamentals in those markets, fundamentals that were largely driven by the policies instituted by the local governments.
The seeds of the attack on Brazil were sown when economic reform was stalled by the Brazilian government. The warning shot across the bow came in 1994 with the devaluation of the Mexican peso. The Brazilians knew that reforms to control government spending had to be implemented, but it was never done. In an effort to lower interest costs, long-term debt was converted to short-term debt, which meant that the debt rollover each year was that much greater. Investors became nervous that in the wake of the Russian debt crisis, risk aversion in the international investment community may lead to an inability to rollover the debt.
In Korea, the situation was related to high levels of debt and a government bent on controlling the economy. These policies resulted in over-investment in many industries that soon became unprofitable. Like Japan, which has had little or no economic growth for eight years, Korean policies impaired market signals. As long as they hid behind inflated economic growth rates that could not be sustained, the system remained in tact, but it was not durable enough to withstand the normal cycle of economic contraction. Incidentally, serious reform measures in Korea since the crisis are restoring growth and should lead to a healthier and more innovative economy.
One other factor you failed to expose was the decision by corporations across Asia to issue debt in US dollars without ever considering that their currency pegs would be undone. In pursuit of lower interest rates, these companies ignored the risks of such a move.
The one-sidedness of your program did a disservice to the capital markets and the role they play. Yes, greed is a factor that drives investors, but it was also a factor that drove the policies of the governments who found themselves in trouble.
new canaan, ct
When the global market is one for goods, and not for financials, then we can expect some stability. However, creating a return on goods means long term investment, something that Wall Street gave up years ago. Wall Street is now running on instant gratification or bailouts where the burden is imposed on the poor of the world, to enhance the pocketbooks of the rich. It needs to change.
I thoroughly enjoyed your June 29th broadcast entitled "The Crash". Until this time, I wasn't able to piece together the string of events that led to the collapses of the east Asian, Brazilian and Russian economies and the corresponding heavy declines in the U.S. stock market in late 1998.
One of the most interesting comments in the broadcast was made by Professor Castaneda when he discussed risk versus return and the absurdity of how the system currently works . He mentioned that higher returns usually involved higher risk. Unfortunately, our government, usually through the IMF or the Federal Reserve, continues to bail out investors when they make a high risk investment. We did this with Long Term Capital, and the Savings and Loan scandal in the late 1980's. In my opinion, this needs to stop. Investors need to understand the basic principle that market investments involve significant risk, including possibly the complete loss of the original capital.
san jose, ca
The notion that the World Bank or the IMF "knows" how to bring a country back from a financial peril is false. There were billion spent in Africa and more recently in Brazil, Asia and Russia. Where did these billions go ? Are the economies of these places better off since the IMF intervention ? Or are there structural problems within these econonies that their respective governments must address ?
The government of Malaysia denounced Mr. Soros as an "evil foreigner" when he bet against the Malaysian ringgit during the financial crisis in that country. Is the government not responsible for its currency? Should it not make its currency as attractive as possible to foriegners ? Why did all the blame fall on the "evil speculators" ? This government did not have any problem with foreigners investing in their economy prior to the crisis. Why should it have a problem with foriegners during and after the crisis? This government is trying to blame outsiders for problems of its own making.
It is amazing how people can see the same facts presented and come away with such differing opinions. We hear during the first few minutes that the G-7 boosted the dollar/yen rate (triggering the Thai crisis eventually). Next, central banks linked their cuurencies to the dollar and tried to keep them pegged, meanwhile the IMF implicitly underwrites loans by not allowing failure, and the Fed/Treasury Dept. bails out countries in trouble.
In each instance, governmental or quasi-governmental action either initiated or facilitated the problem. Interestingly, capitalism is somehow blamed in what is arguably a government created crisis. "Free Market" capitalism (a phrase tossed around quite a bit in your report) requires a separation of government and economy.
It was predictable that PBS would avoid offering an expert to describe the difference between the mixed economy we have now and capitalism. How about letting Milton Friedman have a few minutes opposite Soros, Fischer, etc.? Some of your experts criticized the markets ability to regulate itself. This is perhaps the biggest distortion of the evening given the existence of government programs to subsidize and encourage capital flow to other markets. Just as poorly designed deposit insurance created the savings and loan crisis here in the US, the IMF, central bank intervention and outright loan guarantees prevented the market from placing the proper risk premium on foreign investment.
Does anyone truly believe that capital (in the quantities described) would have flowed to Mexico, Russia, Indonesia, etc., without these market distorting policies? The most obvious implication of your report is not that capitalism fails, but rather that government policies (even those with good intentions) destroy the ability of markets to work correctly. Unfortunatly, your presentation will leave the opposite impression.
Congratulations on a very informative and thought-provoking program. What alarmed me the most was the realization that most of these so-called financial wizards are playing the Global money market games for the first time and are learning as they go along. In the meantime, whole countries are collapsing under their greed,wreaking devastation on families.
As I was listening to the economic wisdom of Soros I also saw a person with kind eyes and a gentle heart. I'm sure he loves his children and family a great deal and would do anything for them if it would make a difference in their lives. As a corporate soldier he has shown us how easy it is to objectify "the other' as he manipulates the system and comes in for the kill leaving families, 'the innocents' devastated, broken, and desperate. Is their such a thing as compassionate corporatism? Please use your power responsibly for the sake of our world family.
st. albert, alberta, canada