You mention buying, but what if the speculator takes short positions with an enormous amount of money (about billions USD).Speculation, if the speculator is correct, works to stabilize markets. That is the speculator buys in anticipation of future shortages and brings more to market during the shortage. After all, isn’t that what Joseph in the old testament did? He had the dream of 7 years of fat, followed by 7 years of famine. He built barns and stored grain during the 7 years of fat, which provided for Egypt during the time of famine. Today we would probably have him arrested for insider trading.
I would say that attempting to corner any market would be immoral. Short selling by itself is not immoral, but if one were to get sufficient control of the market for one particular country’s currency, then profiting off of that market power would be immoral. The question here is whether or not such a scenario is possible. After all, the hunt brothers attempted to corner the silver market, failed miserably and paid dearly for their sins.You mention buying, but what if the speculator takes short positions with an enormous amount of money (about billions USD).
But what do you think about George Soros, Stanley Druckenmiller, and Julian Robertson’s speculation against the Thai bhat?I would say that attempting to corner any market would be immoral. Short selling by itself is not immoral, but if one were to get sufficient control of the market for one particular country’s currency, then profiting off of that market power would be immoral. The question here is whether or not such a scenario is possible. After all, the hunt brothers attempted to corner the silver market, failed miserably and paid dearly for their sins.
The speculators guessed that the Thais would rather fight than devalue. Devaluation would hurt the elite, who would watch principal and interest payments soar for their dollar-denominated loans. The alternative to devaluation was a further hike in interest rates, but that would produce a flood of bankruptcies and further weaken a banking system that was already in trouble because lax government supervisors had allowed their banker cronies to ignore capital requirements.
Sensing that their prey had been cornered by their own venality, the wolves began to circle in early 1997. The amoral pursuit of profit was about to punish the sins of cronyism and corruption. Drawing from multibillion-dollar war chests, hedge-fund operators such as George Soros and Julian Robertson intensified their attack on the baht. One way the speculators bet against the currency was by entering into contracts with dealers who would give dollars in return for an agreement to repay a specific amount of bahts some months in the future. If the baht rose in value, the seller of the contract made money; but if it fell, the buyer profited because he could repay the contract with cheaper bahts. Demand for such contracts started to drive up interest rates, and the Bank of Thailand began issuing many of these so-called forward contracts itself.
This action turned out to be a fatal misstep that placed in the hands of speculators the perfect weapon with which to attack the currency. “It’s as though an unarmed gunslinger walked into town and the sheriff handed him a pistol,” remarked a beneficiary of the central bank’s unintended largesse. Now speculators had access to an estimated $15 billion in forward contracts issued in February and March that they would not have to cover for as much as a year. An estimated 80% to 90% of these forward contracts ended up in the hands of speculators. By May the central bank realized it was contributing to the baht’s undoing and abruptly stopped issuing any more forward contracts.
users.cyberone.com.au/myers/asia-crisis.htmlSensing blood, traders began moving in for the kill and in mid-May flooded the market with orders to sell bahts. But the government began playing hardball. The central bank invoked a mutual-assistance agreement with monetary authorities in Singapore, Hong Kong and Malaysia and spent more than $10 billion in just a few days buying bahts and selling dollars.
Part of the problem here is that during this time period Thailand was attempting to fix its exchange rates. When exchange rates are fixed it does occaisionally present profitable speculation opportunities, these opportunities are less likely to occur when exchange rates are floating.But what do you think about George Soros, Stanley Druckenmiller, and Julian Robertson’s speculation against the Thai bhat?
users.cyberone.com.au/myers/asia-crisis.html
But if I were a hedge fund manager, I would consider my actions amoral. I have only one task: the maximize the returns for my (wealthy) clients, and I have to do focus on that without dwellling on the consequences.