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Monday, Aug. 30, 2004
They came, they saw, they pillaged Asia
By TOM PLATE
LOS ANGELES -- Financial authorities are aghast over the latest near-death international financial collision. It involved a lightening-fast dumping earlier this month of nearly $14 billion in securities. The perpetrator was Citigroup, operating out of London.
In about two minutes, it flooded the European market with euro-zone government bonds, sending the price southward. Citigroup then began buying them back in huge gobs, realizing a complex but substantial profit in the end.
Furious over the ploy, the enforcement division of Britain's Financial Services Authority has launched a formal investigation. In a brusque statement, the FSA said its "key aims include maintaining efficient, orderly and clean financial markets. In the view of the FSA, achievement of that aim requires large players in financial markets to have regard for the likely consequences of their trading strategies."
There were two key prerequisites for Citigroup in executing this destabilizing but profitable coup. The first was state-of-the-art Internet and computer-technology that enables such colossal trades to be done in a matter of a few keystrokes. The second was pliable human software: the abject willingness of Citigroup to engage in what some observers termed "unprecedented trading tactics."
In truth, the bombastic bond deal was far from categorically unique. During the Asian financial crisis, after all, Western hedge, derivative and speculative funds prowled the region like voracious sharks in search of vulnerable equity and currency markets. Western money was shorting currencies and stocks day after day, unsettling even some economies that were otherwise fundamentally sound.
During the height of the crisis, Hong Kong's Donald Tsang complained to the then-chief financial secretary -- now the territory's No. 2 -- that "the amount of speculative money that can come into a local market, and the speed with which it can blow through a market, can overcome even well-ordered national economies."
Citigroup is hardly the first giant fund holder to push the ethical envelope and, without imaginative and far-reaching international regulation, will not be the last. Greed on some Adam Smith level may be good (as in the Great Motivator), but played out on the large tapestry of the international financial order, it presents the risk of sinking the Titanic.
What's more, these recurring convulsions of greed would at times appear to have an ugly West vs. East theme to it. Listen to this: "Throughout the eighties, the Japanese were stomping all over our economy. Buying up landmarks like Rockefeller Center, Pebble Beach and most of downtown L.A. They used a corrupt banking system and a closed, arbitrarily controlled market to protect themselves, creating massive inefficiencies along the way. My colleagues and I just capitalized on these inefficiencies."
Those sentiments were attributed to young Princeton graduate John Malcolm by acclaimed author Ben Mezrich in the just-released nonfiction thriller described as "The True Story of the Ivy League Cowboys Who Raided the Asian Markets for Millions."
Malcolm, assistant trader to the notorious Nick Leeson, the 26-year-old Barings Bank trader who went to jail, and his twentysomething Ivy Leaguers entered the Asian markets and cleaned up via "arbitrage with a battle ax."
"The cast of characters was right out of a Hollywood thriller: geniuses culled almost exclusively from the Ivy League, driven by ambition, some with an almost total lack of both ethics and proportion," writes Mezrich. "Funded by private investors and massive corporate banks, they were raiders and traders and speculators all rolled together, true adrenaline junkies who lived at the edge of life."
This amazing story, which takes place primarily in Tokyo, Singapore and Hong Kong, is a micro-version in narrative of the dark side of the American dream. Mismanaged and corrupt regional economies were also to blame, to be sure. But the West's primary contribution in the initial stages -- before the entry of rescuing Western financial institutions -- was to make these crises worse more quickly.
"You have to understand," one young American trader is quoted in the book as saying about his rapacious stint in Tokyo, "I got here right after the [Japanese financial] bubble burst. In the eighties this was the richest city in the world; the streets were bleeding money. Then it all fell apart, and we showed up."
"An invasion from the West," quipped author Mezrich, a Harvard magna cum laude. His book is titled "Ugly Americans." I cannot recommend it more highly, not to mention with more sadness. The Asia financial crisis of 1997-99 may be long gone, but may it never be forgotten.
UCLA professor Tom Plate, a member of the Pacific Council on International Policy, is founder of the Asia Pacific Media Network. Copyright 2004 Tom Plate