Hedge funds and over dependence on ‘cheap’ foreign capital

Some snippets from the financial press via Noland:

May 31 – The Wall Street Journal (Michael M. Phillips): “Developing nations are growing increasingly dependent on cheap foreign capital, a situation that some economists warn is reminiscent of the lead-up to the financial meltdown of the late 1990s. In a report to be released today, the World Bank calculates that private investors plowed a record $491 billion into developing-country stocks, bonds, factories and other assets last year, up from $397 billion the previous year.”

June 2 – Financial Times (Ralph Atkins): “Hedge funds have created a ‘major risk’ to global financial stability for which there are no obvious remedies, the European Central Bank warned yesterday in one of the bluntest official statements yet on the rapidly growing sector. In a clear hint of rising official nervousness about the multi-billion-dollar industry, the ECB ranked an ‘idiosyncratic collapse of a key hedge fund or a cluster of smaller funds’ in the same category as a possible bird flu pandemic as the type of shock that could trigger fresh disruption in financial markets… The ECB’s concerns about hedge funds contrasts with a more relaxed attitude from other international regulators. Alan Greenspan…said last month: ‘Hedge funds are a plus for the financial system. They increase the efficiency of the markets by taking advantage of mispriced securities and other market inefficiencies.’”