THE GOOFY CAPITALISTS

Watching the IMF in Bangkok,

Michael Lewis decides that money is too important

to be left to bankers

Bangkok THE CROWD in the hall outside the prin- cipal G-7 meeting rooms goes quiet for the first time all day. A middle-aged man with dark curly hair and the last traces of a ten- nis-court tan rapidly approaches. He wears a blue name badge — the mark of a big shot — only no one notices. He passes three French journalists in their yellow media badges, who do not even bother to look up from their conversation. He passes the 67 Thai camera crews stretched out along the floor, snoozing. Then he does something strange. He slows his stride. He looks at the crowd of journalists as one actor might look at another who has for- gotten his cue. Suddenly, an excited voice not so far away from me shouts:

'It's Greenspan!'

The yellow badges go wild, as if Michael Jackson had been dropped break-dancing Into their midst. The 67 Thai camera crews scramble to their feet, followed by French, Italians, Germans, Americans, a couple of hundred Japanese and one pudgy. Sudanese in tinted glasses. The sound of the journal- ists' hooves drowns all thought. Supposedly intelligent human beings are running, actu- ally running, just to be closer to the Chair- man of the US Federal Reserve. Why? Do they think this disciple of Ayn Rand will Pull himself up and announce a pro- gramme to rescue Russia? Of course not. No one believes Greenspan will say one word. No one thinks he'll do anything but dash for the meeting room. Which is exactly what he does. Once he's sure he has been recognised, the central banker lowers his head and charges through the crowd. He gathers speed as he sheds the last Thai camera crew on the red theatre ropes at the bottom of the stairs that lead to the meeting chambers. He reaches the top three stairs and, though early for the meeting, finishes with the most marvellous time-is-money sprint. This is a little piece of American showmanship; (1Y Greenspan and Treasury Secretary Nicholas Brady run the stairs into the con- ference room. They alone have adopted the style of the sports-crazy ruler of the free world; perhaps, like him, to mask the

absence of genuine resolve and vigour.

The madness of the World Bank conven- tion is partly the madness of pack journal- ism, but above all the madness of bankers. The peculiar combination of tedium and unreason is exactly what you would expect if you brought several thousand men from Fuji Bank and Citicorp in charge of doling out other people's money together with several thousand overfed bureaucrats intent on laying their hands on it, the whole of the proceedings supervised by an indul- gent press. The pink-badged bankers mill impotently about the convention centre as their Lords of Discipline — the finance ministers and central bankers — confer in a nearby meeting over nothing. The G-7 was meant to discuss the needs of Russia, but the Russian delegation has stood them up. No one seemed to know exactly where the Russians were, though it was rumoured they were back in Moscow arguing about who gets the free trip to Bangkok. Yet nei- ther the press nor the bankers seemed ter- ribly bothered that the Russians could be

so careless and unbusinesslike as to miss the chance to discuss their future with the world's largest patrons.

For in this context the Russians seem almost sane. The Cambodians arrived together and almost instantly fell out bick- ering. Forgetting that their mission is to trawl for banking dollars, they instead passed their days penning press releases accusing each other of various personality disorders. Six members of the supreme National Council representing the Cambo- dian government, for example, took issue with one such release from the head of their delegation, Mr Son Sann. Their press release began, The vulgarity of his most recent press release clearly reflects the mentality and personality of Mr Son Sann.' The Africans — to take a less politically correct example — are a further study in chaos. The Zairian representative, sacked by his government on his way to the air- port, came anyway, and duped bankers and officials from the IMF for days before he was exposed. While most of the offices in the convention centre are perpetually empty, the offices of nearly all the African delegations are as lively as a beer bash. No, they are a beer bash, as each delegation throws a little party for itself. Their mem- bers seem less intrigued by proceedings than by the luxuries —limousines, food on offer. It is as if the whole of Africa has decided that the jig is up and no banker is going to be conned into giving them any more money so they might as well enjoy the annual World Bank boondoggle, swap- ping old war stories in the company of friends. The journalist David Shirref but- tonholed an Albanian delegate — Gramoz Pashko — as he searched the office corri- dors for a fax machine. Pashko came with- out secretaries because the cost of transport was $30,000 and '$30,000 was 30 tons of meat' for fellow Albanians. He was appalled by the size and splendour of the African delegations, 'from some of the poorest countries you can imagine. They occupy nearly a whole floor of my hotel.'

It is sobering to recall that ten years ago the bankers from Citicorp and Chase were competing to sell money to African coun- tries. Now the Africans are out and the Russians are in. For the Russians, however, this is academic. By unfortunate coinci- dence, their cry for funds coincides with the end of the best party ever thrown by the free world's largest and allegedly most astute banks. In the past decade the men who fill the convention centre have acted less as repositories of world savings than machines for losing money. They have squandered untold sums — in the Third World, in real estate, in leveraged buy-outs. Just when it seems that they have found the last sink-hole, they find another. A finan- cial newsletter called Grant's Interest Rate Observer recently carried a cartoon that neatly captured the financial spirit of today. A young man with high-top sneakers, a baseball cap and a ghetto-blaster sticks his head into the door of the Wall Street offices of J.P. Morgan and shouts into the void: 'Yo! You people still makin' those loans the guy don't have to pay back?' The answer is no, they are not, which is bad news for those who have recently shed their socialism. No one in Bangkok is feel- ing any need for a little hair of the dog.

For the world's bankers grow cautious together, just as they once grew reckless together. Caution seems to be less a sound business judgment than another herd instinct of Banking Man. No other reason explains why the bankers of the largest creditor nation (Japan) and the largest debtor nation (America) are in precisely the same mood. No other reason explains why they have landed themselves in pre- cisely the same trap. The credit crunch in America is so acute that the (theoretically) laissez-faire Bush administration is now des- perate for ways to encourage bankers to lend. Worse, the savings and loan debacle looks as though it may be followed by a large bank bailout; the US Treasury will soon lend $70 billion to the national bank insurance fund. According to Charles Peabody, a banking analyst at Kidder Peabody, bad real-estate loans — such as those that created Donald Trump — con- stitute 12 per cent of all American bank assets. Alone — which they aren't — these losses would be sufficient to consume all the equity of the banks.

The problem in Japan is in some ways even worse; like the Americans, the Japanese have failed dramatically in their first duty, which is to preserve the savings in their trust; unlike the Americans, they can't blame their failure on a weak econo- my. Japanese banks are now digesting the losses from lending into their domestic speculative mania. Sumitomo Bank, for example, recently acknowledged it unwisely had lent a billion dollars into a land gam- bling venture run by its corporate cousin Itoman. The Fuji Bank is the laughing stock of the world banking community which is saying something — for having lent $2.3 billion to a nice middle-aged lady in Osaka, who used the funds to speculate in the stock market. One might have

thought it impossible for the Japanese banks to become less credit worthy in an economy which, since 1985, has expanded by more than the size of the entire French economy; but that is what has happened. Perhaps the lesson here is that the integrity of your financial system depends less on whether you arc in the red or the black, but on the extent to which you participate 'in the frenzied creation of huge imbalances.

It's worth remembering how we came to this unfortunate pass. It wasn't merely unlucky macro-economics. The unthinking optimism of Banking Man when blended with the commercial idiocy of all large institutions formed a powerful toxin. The former king of junk bonds, Michael Milken, was fond of claiming that his entire business grew out of exploiting the phony sense of prudence and poor judgment that governed the lending decisions of the American banker; and he was right. He made billions by funding growing compa- nies shunned by banks, and we are all bet- ter off for his judgment, not the banks'. A bright young friend of mine, with more modest ambition, joined a large American bank in the mid-1980s. To test his judg- ment, his superior handed him a loan file. It was obvious to my friend that the request for the loan — from an African govern- ment, as it happens — should be rejected. `Wrong,' said his boss. 'We're making the loan. I only want you to tell me why.' A few months later my enterprising friend quit, and made his fortune buying and trading bad banks loans for himself.

We are only surprised by how foolish the bankers have been because our awe for large institutions leads us to forget what we know about the people inside them. To imagine how the money has been lost, all one need do is think back to one's final university days, when all the clubbable Rogers and Nigels stumbled handsomely out of their rugby scrum and into the near- est commercial bank, whereupon they begin to lend money. The sad truth, one suspects, is that anyone willing to become a banker in the first place probably shouldn't be entrusted with other people's money. Or, with the larger decisions about how socialists become capitalists.

Which brings us back to Bangkok. Two days later the wannabe capitalists finally arrived — and did nothing to allay the per- 'I asked Robin Cook and William Waldegrave to sign it.' haps naïve concern that they are culturally ill-equipped for the change. Of course, in the convention centre the Russians were dignified wherever they went by hundreds of reporters, who formed a rolling thunder- storm of cameras and note pads that wiped out everything in its path. Russian finance minister Grigory Yavlinski left in his wake a trail of trampled theatre ropes and wounded bystanders, confused by flying television cameras. Outside the convention centre, however, the Russians cut a differ- ent sort of swathe; through the brothels of Bangkok, their jacket pockets stuffed with the food, wrapped in napkins, that they had pinched earlier from the fancy receptions of international bankers. It is a bad omen, this petty larceny. As a senior economist at a central bank put it to me, if you set out to synthesise a race of men prone to financial scandal, you would end up with something like the Russian.

Or, in other words, they possess all the qualifications to be the next banking fad. Such is the enthusiasm for the new finan- cial one-worldism — only Cuba and North Korea withhold their charms from the IMF — that no one gives voice to the harsh thought that simply because you've been bad at socialism doesn't mean you'll be much good at capitalism. The standard assumption of the economic textbooks is that people adjust to the system of incen- tives under which they live; introduce sound money and the chance to grow rich and, sooner are later, Russians will be exporting video recorders. What might be called the real-world view is that the system adjusts to the character of the people; no matter how many billions are at stake, the Russian will always miss the big marketing meeting because he's busy squabbling with other Russians, The real-world view is never considered in Bangkok. You can be sure that if the bankers had the money they'd be throwing it at the Russians.

All of which is a reminder that there is a reason we call our system capitalism. It turns on the notion that spare resources should move freely to create more spare resources. Bankers exist because those who happen to own the spare resources are not always best suited to employ them. The uniform dark blue suits, the preternatural caution, the doric columns on the front of their headquarters, the marble floors inside all deliberately disguise the central fact that the process of moving around resources Is not risk-free. A bank is no more than an officially sanctioned pyramid selling scheme, run by men far less agile than pyramid salesmen. If the commercial bankers have about them the air of being doomed to lending money they'll never again see, to being rained on while waiting outside for a taxi, to finishing second to the merchant bankers — it is only because they are. Yet bankers will preside over the into

capitalist of socialist economies capitalist economies. Our only consolation is that they are not Russian.