August 22, 2001	atimes.com

Editorials Speaking of corruption ... There are as many opinions on what exactly caused the 1997-98 Asian crisis as there are analysts of it. But four years after speculative attacks on and forced devaluation of the Thai baht kicked loose the mudslide, the International Monetary Fund, the World Bank, and most - Western, at any rate - analysts seem to be agreed that lack of transparency in financial transactions, political loans and lending to family members without due diligence or project evaluation, and other questionable or corrupt practices grouped under the catch-all terms of "moral hazard" and "crony capitalism" played a major role in making the East Asian economies vulnerable to taking a great fall. The drop in East Asian asset prices, of course, was dramatic. Just prior to the onset of the crisis in July 1997, the combined stock market capitalization of the exchanges of the principal crisis economies of Indonesia, Korea, Malaysia and Thailand was around US$520 billion. By January of 1998, it had dropped to about $280 billion, and - some intermediary rallies notwithstanding - now stands at $260 billion, cut in half over the past four years. These are ugly numbers. Consequences of the East Asian asset price collapse, unhappily, have not been limited to the rather small number of asset holders, but have affected hundreds of millions of victims of collateral damage. Ugly practices equally responsible for the financial and social disaster of the past several years must be stamped out. But was has bothered us from the get-go of the finger-pointing after the crisis had hit was the holier-than-thou attitude of most multilateral financial institution officials and major shareholders, of extra-regional lenders, and of their political claques and analyst and journalistic coteries. For every greedy and unscrupulous East Asian borrower there were not only greedy Asian, but as many equally greedy and "moral-hazard"-afflicted Western and multilateral lenders. At the World Bank, there was a whole team that "analyzed" and touted the "East Asian Miracle" only a couple of years before the crisis hit, and it was "Asian values", not "moral hazard" the fabled report highlighted. The combination of venom and glee to which Asia and its economic woes have been treated since 1997 represent a disgusting bit of hypocrisy. In this context, we take note of a prescient Wall Street Journal article. In part it read: "Last year banks boosted credit [at] ... the fastest pace in 10 years. More financial institutions eased their lending standards than raised them, and many lowered rates for the dicier deals. According to a prominent banker, 'Credit standards are the weakest of any time during [his] nearly four decades of banking.' A leading businessman said, 'There's too much money chasing too few deals ... As long as the economy stays hot, the impact of slipping credit quality will remain muted. But when the downturn hits - and someday it will hit - the recession will be exacerbated by defaults on loans that never should have been made." And, no, the article was not in shrewd anticipation of the Asian crisis. It was published on April 20, 1998 and it was about the US economy. The banker quoted was John Medlin, chairman of Wachovia Bank, and the businessman GE's Jack Welch. Two years later, US technology stocks collapsed. Six months after that the US economy went into steep decline. Moral hazard? Corrupt practices? We'll let US regulators, bankers, analysts and financial journalists figure that out. And US regulators, specifically the Securities and Exchange Commission, and New York prosecutors at present have another little problem to cope with. It appears that during the late 1990s Internet IPO boom a cozy little relationship between analysts, investment bankers and preferred investors developed. "You write a nice report on the prospects of a company about to go public and you'll be rewarded," analysts were told. And paid they were. "We'll make sure you'll get all the stock allotments you want, but you'll kick back some of your profits," investors were told. And kick back they did. And who were the ones doing the telling? Not some fly-by-night brokerage outfits, but Wall Street's big boys: Credit Suisse First Boston in the lead, followed by Goldman Sachs, Merrill Lynch, Morgan Stanley, Lehman Brothers, Salomon Smith Barney. CSFB's tech team boss Frank Quattrone raked in hundreds of millions, personally; the bank billions. Cronyism? C'mon now. But our favorite - ah, so transparent - recent deal is a transcontinental, transcultural one. A few months back, Deutsche Telekom, one of the world's largest (and most heavily indebted - in the order of magnitude of the foreign debt of Thailand) telecommunications companies acquired US mobile phone service provider VoiceStream. As the result of the acquisition, Hong Kong's Hutchison Whampoa, a VoiceStream shareholder, found itself with tens of millions of Deutsche Telekom shares it apparently didn't want. But there was a problem: a lock-up period terminating September 1, 2001, during which no shares could be sold. So, on August 3, Hutchison officials met in Hong Kong with Deutsche Bank officials and a deal was struck: Hutchison would "lend" its Deutsche Telekom shares to Deutsche Bank for a year (some call options included), and the bank would sell the shares in private transactions. Quite coincidentally, also on August 3, a Deutsche Bank telecom analyst, Stuart Birdt, issued a "Buy" recommendation for the Telekom stock. Then, on August 7, the bank put 44 million Telekom shares on the market - and shortly thereafter the Telekom share price in Frankfurt crashed, losing 30 percent in value within 48 hours and imparting losses of well over US$10 billion to shareholders caught unawares. Shady deal? Not so, says Deutsche Bank which stands to collect hefty commissions. Not so, also appears to be the verdict of the German securities watchdog (whose teeth seem to have been pulled and eyes blinded). Yes, Dear Reader, we know: Two wrongs don't make a right. Shady Asian deals don't become acceptable because of shady American and European ones. We just thought we'd inform you on the marvellous progress of globalization. ((c)2001 Asia Times Online Co, Ltd. All rights reserved. Please contact content@atimes.comfor information on our sales and syndication policies.)

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