Another revelation is the lack of prudence of Western financial institutions in their lending to hedge funds. The IMF and rich nations are fond of deriding financial institutions in developing countries for their loose lending and the regulators for not doing their job, which contributed to the Asian financial crisis. But the Western banks have also been massively careless and the Western regulators have been amiss, as shown in the LTCM affair. Just as Asian banks overlent for share purchases, Western banks foolishly lent to hedge funds to speculate in financial markets. The big investment banks had made similarly imprudent loans to a firm that generated huge volumes of business in securities and derivatives trading for them.
More crises involving other funds are on the cards.
Two of its hedge funds suffered losses in emerging markets, especially Russian bonds and Latin American stocks. We can expect more shocks from hedge funds, which can win big for their millionaire owners, but can also lose big for their investors, creditors and the financial system. Martin Khor is the Director of Third World Network.