The Rise of Sovereign Wealth Funds (SWF)
In the late 90s, George Soros was pissed off with Asean for not doing more to help the Burmese citizens, who where oppressed by their own leader and had even murdered by the thousands, burmese.
He was an hedge and pension fund operator, with billions in his company accounts. He used such money to sell down asian currency, beginning with Thailand. Thailand was an emerging economy, but the valuation of its dollars went down, and had to devalue its currency due to drop in confidence despite its strong credibility and fundamentals, which made many thais suffered.
Businesses went bankrupt, run on banks, jobless rates rosed. And in this panic, it led to other asian countries, whose businesses were already not that clean or transparent anyway, causing lost confidence and millions suffered. Thanks to Soros.
Many other hedgefund operators then saw what they could do with their clients money, by the billions, and soon followed suit, although not for altrusic reasons, good or bad, as Soros had.
They went into the market for short term gains, earn profits to pay off themselves with huge salaries and better returns than banks to investors. Many were sold on the premise that 'wealth begets more wealth' being that hedgefund had billions of dollars in holdings, their small savings invested there will bring them higher returns than frigid and overly cautious banks.
Singapore realized Soros and his kind's financial power, and the only way to prevent or defend the country was to use SWF - the people's money - to protect its interests, sovereignity and growing economy. Singapore learnt Soros's lesson well. Unfortunately, not many countries, believing in the free market and non govt - intervention, were keen on the idea.
If every asean nation had an SWF, it would have bankrupted Soros attempt in selling down Thai baht. For every dollar Soros sold, an united SWF would buy back ten times with their reserves, pushing up the value of thai baht as well as other asean currencies under attack.
Investors will instead be clamouring for Soros head on a pike in market square for squandering their investment. But this was not so. Soros won and won big, both in prestige and power, on what one man could do, inspiring many others.
Now with this present crisis, the minimal amount of SWFs could not help contain the panic. As much as Singapore tried to help, with Morgan Stanley and few other institutions to prop them up, there is only so much we can do. But many countries had now realized the importance of SWF.
WIth SWF, theoratically, this financial crisis could have been stopped, by using its existing international funds united to checkmate hedgefund operators and bankrupt them. Investors will have to accept the risks, but govts realized the social costs were too high to pay.
So they offered taxpayers' current and future payments as guarantees to banks to prop up financial confidence, in the absence of SWF, and let the hedgefund operators and investments dictate the market, to redeem their loses to pay off their investors, for their recklesslessness and greed, at the expense of viable business entities who saw their hard work and market valuation drop.
Many businesses suffered as a result, and investors confidence at an all time low. Mistakes had been made, social safety nets casted, and from these ashes, SWF will become mandatory for each and every nation as a weapon against the massive funds hedgefund/pension funds operators, which will attempt to grow and repeat the mistakes made, because greed is ever present in mankind, more so in a 'free cowboy market.
To keep up with the illusion of free markets, and allow capital to flow for genuine investments, hidden in the dark corners will be SWF, ready to swop on unsuspecting new hedgefund operators. WIth an united front, SWFs will be able to reverse the damage HF operators will attempt - by following HF actions in the opposite direction or reverse their gameplay strategies -, because no HF can be as massive a national fund or even an united fund, and will lose money and credibility in time.
Howere, here lies the danger of SWF.
In its altrusic form, it can be a source of good to provide capital for viable businesses with long term goals.
But as it is nationalistic in nature, it would only look after its own interests, or the regional sphere. For example, were US and Europe were to be angry with Asean's stand on Mynmar, it could join forces and wreck the economies of Asean overnight.
Or if Opec is angry with its low price of oil, it launches a high bid for its own oil with the help of Russia, and other nations will bleed to death.
Thus, there is a need to regulate SWFs. My suggestion is a form of ' Earth's Constitution' on what it can and cannot do, and all nations adhere to its rule or by destroyed by it. If not, lives - not only the leaders, but the common people's savings and livehood, will be wipe out.
Diplomacy must be used to solve sovereignity issues. At worse, arms be used. Even though i may not be 18 yrs old again and in the prime of my youth, i can still shoulder a gun and hike mountains.
Better it be resolved in the time old fashion than to wreck the economy. Women, the old, and children are innocent. Wrecking economies will only hurt innocent non-combatants such as them.
Destroy HF by all means, but watch out for SWFs. If not, in 10 yrs time, the next cycle of financial crisis will be caused by the clash of SWF's, and the repercussions will be more dramatic and catastrophic.
For now, the rise of more SWFs has began, born from the embers of this current financial crisis, a solution perhaps. Tamed, and it could herald in a new era of regulated and stable form of capitalism for financial wealth creation and monetary exchange for the good of mankind, but untamed, like a nuclear bomb, it will be the beginning of the end of mankind or at least a significant large portion of it.