Millionaires: Gambling With Stocks Might End Raising
Interest-Free Capital In Poor Countries


By J. Yanqui Zaza

The Perspective
Atlanta, Georgia
June 30, 2006


The U.S. Court ruling in June 2006 on the speculation business or hedge funds and the $33.3 trillion dollar wealth accumulated by 8.7 millionaires in 2005 might deny, for example, Liberian capitalists an opportunity to establish a stock exchange at home. More so, it might also prevent Liberian corporations from raising interest-free capital. The Associated Press news report (6/20/06), based on a study conducted by Merrill Lynch Foundation on millionaires stated that most of the speculators got their wealth by aggressively gambling with cash into stock markets in developing countries.

Regrettably, the U.S. Court gave speculators a free ride despite the president of the U.S. Stock and Exchange Commission, Mr. William Donaldson's argument that speculation was a systematic risk to business, as we know it. The ruling in June 2006 denied the S.E.C. the regulatory power to monitor hedge funds that trade in speculation. Prior to the ruling European governments had called for an international regulation to prevent speculators from destroying their markets.

The news reports came in less than two weeks after I wrote a story about the Alpha Magazine's study, which stated that chief executives earned $1 billion dollar pay in 2005 from "high tech pyramid." In the 6/9/06 article carried by the Perspective Web Site entitled "World Bank's debt ruins developing countries; now speculators' $1 billion dollar pay might just bury them," I surmised then that if more speculators continue to earn billion dollar pay, developing countries would not finance social programs.

Predictably, with individuals shifting billion of dollars away from most countries' coffers, it is no surprise why many donor countries find it difficult to fulfill their commitments to the U.N. and pledges to recipients such as Iraq, Afghanistan or Liberia. In fact, the IRIN News Services reported that Annette Rehirl of UNHCR said donors have paid only 20% of their pledges to repatriate Liberian refugees. It was also not a surprise to hear on
E-CSPAN2 on 6/22/06 when John Edwards, U.S. former senator and former U.S. vice presidential candidate stated that 37 million Americans earned income below the poverty line.

Neither was it a surprise to read three separate NY Times front-page stories carried on 6/16/06, 6/23/06 and 6/28/06 reporting on the miseries of the poor of three African countries (Angola, the Democratic Republic of Congo and Uganda). Interestingly, the writers of the NY Times articles left out reasons as to how and what role, if any, external forces contributed in sowing the seeds of miseries in those countries.

It is true that before speculation became locusts (that's how a German politician described speculators), profiteers have widened and continue to widen the gap between the rich and poor. They shift the tax burden to the poor and use dubious accounting system, deregulation or shadowy privatization to enrich themselves. It is also true that rogue corporations and NGOs, including those affiliated with the World Bank, continue to connive with handpicked depots and redirect wealth away from coffers of nation-states to individuals' bank account.

However, Floyd Norris, NY Times 6/16/06 stated that the spoils of speculation would not only widen the gap between rich and poor, the fear alone would create a new hostility to open economies. He stated that corporations in developing countries now fear that it is risky to sell stocks to foreigners just as it was risky when developing countries sold bonds to foreigners. This is true because of the damage that would be created if they all tried to get out at once as they did in 1998.

Before going forward, let us review the difference between stocks and bonds. Governments and corporations sell bonds to creditors for cash and pay interest and principal. Governments do not sell stocks. Corporations do and pay no interest because the buyer owns interest in the corporations.

The question for Liberian capitalists is would corporations sell stocks to raise interest-free capital and become vulnerable or would they end up selling stocks to foreigners and remained cash trapped. Some developing countries are still recovering from the damage after they sold bonds to foreigners in 1998. Also stock markets in Saudi Arabia and the United Arab Emirates that spiked by more than 100% have plunged by more than 50% in 2006. (The Associated Press (6/20/06).

So, as long as more millionaires aspire to become billionaires by speculating, the stocks markets might not survive in poor countries. Additionally, if three paneled Judges in the U.S. Courts, where the S.E.C. regulatory system is perceived to be rigid than the ones across the Atlantic Ocean, do not see the danger the president of the S.E.C presented, European governments' campaign to impose an international regulation might be an illusion. Off-course alarmingly, the speculating business will thrive, while corporations would not be within an environment to raise capital and spur development in poor countries.

Are there any lessons Liberians could learn from the debate about the speculating business? Well, Nicholas D. Kristof, while advising Americans about her education policy, stated in the NY Times (6/27/06) that the Chinese Qing Dynasty that ended in 1912 paid a price for being slow in learning lessons from abroad. Should Liberians wait to put their house in order before they begin to understand the effects of speculating? Send your opinion to the appropriate authorities.

© 2006 by The Perspective

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