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Adam Smith Isn't Dead
Adam Smith Isn't Dead
Page 1 of 2
November 4, 2006
Pramit Pal Chaudhuri, Hindustan Times Email Author September 28, 2008
First Published: 20:54 IST(28/9/2008) Last Updated: 20:57 IST(28/9/2008)
http://www.hindustantimes.com/StoryPage/Print.aspx?Id=40d6f914-cfc8-4c3e-8180-666b...
9/29/2008
HindustanTimes-Print
Page 2 of 2
One, already mentioned, was the sheer expansion of capital in the economy. In 1945, only the US generated surplus funds for the world economy. Today, everyone from China to India, Brazil to Bahrain, adds to the global pool. When its capital thats on tap, no one has the necessary plumbing. This capital flow then joined with an information technology revolution whose intangible impact on finance, one, reduced regulation to guesswork for people like Greenspan and, two, paved the way for quant-based risk assessment. Most quants used a measure known as Value at Risk that drew on historical data. But what if you live in ahistorical times? Finally, because even regulators are groping with the new financial order, the man on the street is less willing to trust governments to do the right thing. This is crucial because much State intervention in the market is not based on financial logic; its just a gut judgement of what is needed to restore public confidence. If Joe Investor believes central bankers don t know what theyre doing, he will join a vicious cycle of financial panic. If he does so, he will join a virtuous cycle of financial recovery. Welcome to 21st century capitalism. The ride has just begun.
http://www.hindustantimes.com/StoryPage/Print.aspx?Id=40d6f914-cfc8-4c3e-8180-666b...
9/29/2008