The IMF Managing Director Michel Camdessus gave a morning lecture on the Asian crisis, calling on Asian countries to be more transparent and market-friendly, and to further liberalize financially by making their capital accounts fully convertible. The questioner commented that the IMF should change its policies that asked Asian countries to have unregulated financial markets, fully open to inflows and outflows of funds and thus to speculation. In reply, Camdessus said that in finding a balance between regulation and freedom, it was important to have the right analysis. This is why I was happy to be asked to study the role of hedge funds. This study will say that you must be careful in using heavily loaded words like 'speculation' and 'speculators'.
Speculation is often only good management and prudence in using our savings.
What is needed is not to curb your market but to have policies that are not exposed to speculation. Speculators, he added, are there to make money, and if a country had sound policies it would not be affected. Largely absolved From this response, it could be clearly anticipated that the IMF study would largely exonerate hedge funds from any major contribution to the Asian crisis. This points against the conclusion that hedge funds play a singular role in precipitating crises. This conclusion of course downplays the most important point, that some hedge funds have extremely high leverage, as exposed by the LTCM episode, which gives them tremendous resources far beyond their capital.