Financial Globalization
and
Instability of the World Economy
Toshiaki Hirai (Sophia University)
1. Introduction ― Globalization
Since the mid-1980s the world has seen the development of Globalization under
the leadership of the US and the UK. Globalization can be summarized as “the
tendency toward the market economy on the global scale”. It has turned out to
dramatically transform the political economy of the world, to such a degree that
nobody could have expected, and it has defined the future course along which the
world should proceed.
We might divide globalization into two types: “financial globalization” (FG), on
the one hand, and “market system (or capitalistic) globalization” (MG) on the
other. FG is the global unification or liberalization of the financial market, while
MG is the multiplication of nations, on the global level, which would adopt the
market system as the fundamental economic mechanism.
We may identify three upheavals which globalization has brought about to the
world system over the last three decade: (i) recapture of leadership of the world
economy through finance by the US and UK; (ii) collapse of the cold war system
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and convergence toward the capitalistic system; (iii) rise of the emerging nations.
The first was caused by the FG, the second and the third by the MG.
It was “Neo-Liberalism” (Thatcherism and Reaganomics) as social philosophy
that has greatly induced the world economy to move in that direction – ‘leave it all
to the markets; government intervention in the economy will hamper its efficiency
and development; the structure should be reformed in such a way that regulation
be abolished as much as possible’. Promoted, backed and promulgated by the
Neo-Liberals, liberalization in the field of finance, labor and capital has been
extended literally on the global scale – above all, the liberalization of finance (or
the FG).
In this paper, we will mainly focus how the FG has been making the world
economy increasingly unstable and volatile as time goes by. In Section 2 we will
explain how financial liberalization has proceeded in the US. In Section 3 we will
see how the world financial system has become unstable and vulnerable, leading
up to the instability of the world economy, as a result of the FG. In Section 4 we
will reflect what the financial liberalization has implied in relation to the world
economy. Finally, in Section 5 we will explain how the US administration has
grappled with the meltdown caused by the Lehman Shock and barely managed to
enact the Financial Regulatory Reform Act this July.
2. The U.S. Financial Liberalization －Attenuation of the Glass-Steagall
Act and Enactment of the Gramm-Leach-Bliley Act
2.1 The Outline
The Glass-Steagall Act (the GS Act hereafter) enacted in 1933 had long been a
dominant act for regulating and overseeing the US financial system. The 1920s of
the USA saw financial fraudulence rampant to the extent that President Roosevelt
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ascribed the Great Depression to it1. Thus the GS Act was enacted, aiming at
imposing strict regulations on the financial institutions. It is composed of three
pillars: (i) regulation of interest rates (“Regulation Q”); (ii) separation of
commercial banking from investment banking; (iii) regulation of interstate
banking.
Even in the 1960s a movement calling for softer regulation was launched by the
lobbying activities of banks eager to enter the municipal bond market. But the GS
Act had worked well enough up until the 1970s, when the situation came to change
thereafter.
In the 1970s investment banks tried to edge into the sphere of commercial
banking, providing customers with money accounts (with interest paid), check
and credit services. The role which the DTCC (Depository Trust and Clearing
Corporation) played here was significant. Throughout the 1970s and 1980s
computerization went ahead only in mega investment banks, where individuals
came to make transactions by means of the so-called “street names”, which
worked as a sort of reserve ratio in the case of commercial banks. Investment
banks were able to get new funds by exploiting them, which aggravated the
commercial banks’ sense of impatience.
In the 1980s bills aiming at relaxing the GS Act had often been submitted to the
Congress. Abolition of Regulation Q came first in 1986, followed by that of the
regulation of interstate banking in 1995 (the Rigle-Neil Act). Lastly, the
separation of commercial banking from investment banking was unlocked by the
Gramm-Leach-Bliley Act (the GLB Act hereafter) in 1999.
2.2 The Relaxation of the Separation of Commercial Banking from Investment
Banking
Here we will see how the GS Act came to be alleviated and finally abolished,
focusing on the separation of commercial banking from investment banking.
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The movement toward relaxation might be said to have proceeded through a
sequence of the FRB’s extended interpretations of Section 20 of the GS Act. In
December of 1986 the FRB interpreted a clause in the Section, which prohibits “in
principle” a commercial bank from dealing in investment banking, in such a way
that it is allowed to do so for up to 5 percent of the total revenue, followed by the
FRB’s decision (spring of 1987) that a commercial bank can underwrite some
securities.
Since A. Greenspan, a former executive of the J.P. Morgan, was appointed
Chairman of the FRB in 1987, relaxation of the GS Act was expedited through the
following stages:
(i) In 1989 the FRB permitted commercial banks to engage in underwriting
securities for up to 10 percent of the total revenue (the first bank allowed
was the J.P. Morgan);
(ii) In December 1996 the FRB authorized bank holding companies to have
investment banks as subsidiaries for up to 25 percent of the total revenue;
(iii) In February 1998 there emerged a merger deal between the Travelers
Insurance Company (the CEO was S. Weil) and the Citicorp (the president
was John Lead). This should have been impossible under the GS Act, but
vigorous lobbying activities developed targeting top figures such as Clinton,
Greenspan and Rubin, resulting in the FRB’s approval of the merger in
September;
(iv) The final blow came with a heated movement calling for abolition of the
GS Act, resulting in enactment of the GLB Act in November 1999.
2.3 Promulgators for the GLB Act
It was financiers such as Wile and Read, and politicians and/or academians such
as Rubin, Summers (whose protégé was Rubin), Greenspan and Gramm
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(Republican Senator) who worked as the promulgators for the GLB Act.
L. Summers and A. Greenspan were responsible for drawing up the GLB Act,
alias “the Citi-Group Approval Act”. Rubin, who resigned as Secretary of the
Treasury in July 2000, was welcomed as CEO of the Citi Group. While he was
there, he induced the Citi Group to embark on risky investments such as the CDO
(Collateralized Debt Obligation)2.
Phil Gramm was also involved with enactment of the Commodity Futures
Modernization Act of 2000 (the CFM Act hereafter), which gave momentum to
moves to legalize the future trade of energy and credit default swaps (the CDS
hereafter).
Prior to this, B. Born, chairperson of the Commodity Futures Trading
Committee (the CFTC), who was worried that the OTC (Over-The-Counter)
Derivatives (esp. the CDS) had been transacted on an ever larger scale, evading
supervision of the financial authorities, insisted on the need for supervision. Her
move, however, came up against harsh opposition from Greenspan, Rubin (the
then Secretary of the Treasury), and Summers, who had promoted relaxation of
the GS Act. It was they who reversed the direction and succeeded in enacting the
CFM Act. Wendy, Gramm’s wife and chairperson of the CFTC under the Reagan
and the G.H. Bush Administrations, also worked hard for the CMF Act, thanks to
which she was to be welcomed by the Enron.
The salient feature of the CFM Act, known as the so-called “Enron Loophole”
(the future trade’s exemption from supervision), lies in “the single stock future”
being allowed; this was to enable higher leverage and more speculative activities
(the Act is held responsible for the California Electricity Crisis in 2000-2001).
The Enron had been very much involved in derivative dealings in the 1990s. In
1999 it set up the “Enron Online” and greatly extended derivative dealings. It was
subsequently to be exposed for continued fraudulent accounting and was forced to
go into bankruptcy, which led up to the bust of the so-called “Dotcom Bubble”.
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P. Gramm3 was thereafter welcomed as executive for the UBS4, where he is
reputed to have played a central role in its extensive involvement with the CDS.
3. The Instability of the World Financial System
How are we to evaluate the influences on the world economy which financial
liberalization or globalization has brought about? They can be approached from
both affirmative and problematic sides.
Because the FG has enabled capital to move to the regions where it can obtain
higher rates of profit, it has contributed to bring about high economic growth
there which could have been impossible otherwise.
Leaving consideration from this affirmative side to a later date, we will here
focus on the problematic side – the instability of the world financial system as the
cause of collapse of the world economy. Firstly we will take up the rise of the
Shadow Banking System, followed by the two turbulent examples.
3.1 The Rise of the Shadow Banking System
The FG which gained momentum in the 1980s ingenerated the “Shadow Banking
System” (SBS hereafter). The US financial system, which had so far been
supervised by the FRB under the GS Act of 1933 with the purpose of keeping the
speculative activities of banking business under control, came to be relaxed
through the above-mentioned financial liberalization, bringing forth a lot of new
financial institutions such as hedge funds and private equities, which lend
themselves freely to speculative dealings without supervision of the financial
authorities. Working out various kinds of securitized papers such as the MBS, the
CDO and the CDS and using leverage, these institutions came to be involved in
risky speculative dealings in the global financial markets. Having watched their
surprisingly high rates of return, the commercial banks, which had been kept
7
under control by the FRB, found their way into the SBS by means of an
off-balance technique, the product being “, Special Investment Vehicles (or SIV)”.
Thus as years went by, the SBS grew bigger and bigger, to such a degree that
share of conventional banking has become smaller and smaller, making the world
financial system more and more unstable and volatile.
Excessive FG had often precipitated the world economy into critical conditions,
and yet the world had managed to evade great catastrophe. But it eventually
caused the Lehman-shock in September 2008, which caused the world financial
system as well as the world economy to plunge precipitously.
We might pose the following questions: could the rise of the SBS have been
desirable, and indeed indispensable to the development of the world economy?;
How could one justify the layered securitized papers and the financial institutions’
speculative activities free from any supervision?; To what degree can the finance
engineering be justified in terms of improvement and/or growth of the capitalistic
system?
Leaving these questions to Section 4.2 below, here we will show two examples of
economic instability as caused by the excessive FG: the Asian financial crisis in
1997-1998 and the subprime loan crisis of 2008, from which the US, the EU and
Japan have yet to find the way out5.
3.2 Two Examples
The Asian Financial Crisis ― The crisis of 1997, which started in Thailand, was
caused by speculative activities of hedge funds. Thailand, which adopted the
dollar-pegged system, began to suffer from a sharp drop in exports because of the
appreciation of dollar (and thus of the baht). Hedge funds, seeing the opportunity
for speculation, continued to sell off the baht, which finally forced the Thai
Government to depreciate it. The Thai economy, which had so far gone on
achieving a high rate of economic growth due to dollars borrowed in the short
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term, plunged into the serious depression with abruptly increased debt in terms of
dollar. The depression rapidly propagated to Malaysia, Indonesia and so forth.
The speculative activities of hedge funds then turned to target Russia in 1998.
It was in 1991 that the Soviet Union disintegrated into several nations, the
largest being Russia. President Yeltsin went ahead with transforming the Russian
economy into a capitalistic system at a dash – the so-called “shock-therapy
method”. The result turned out to be devastating, causing high inflation and
severe unemployment as well as the fiscal crisis in 1997. The Russian government
was forced to collect necessary revenues through issue of national bonds. Thus it
was Russia, sunk in a very fragile and chaotic situation, that hedge funds
targeted. Russia failed to maintain the ruble, and was forced to declare default for
the national bonds.
Now came the turn of a hedge fund named “Long Term Capital Management”
(the LTCM hereafter), which continued to buy the Russian bonds. It gloried for
the two Nobel Laureates for Economics (for the “Black-Scholes Equation”
determining option prices) as co-founders. Although it had only 150 employees, it
gained such a high reputation due to its initial startling success that major banks
from all over the world were willing to hand out blank checks. Around 1998 the
LTCM, a neutral-type hedge fund, came to manipulate 100 billion dollars and
take a position of 1000 billion dollars.
Due to the default of the Russian bond, however, the LTCM suffered heavy loss.
Suddenly there emerged a high possibility that, if the LTCM were left as it was,
the world would plunge into a formidable financial crisis. It was in September
1998 that the Federal Reserve Bank of New York (the then president was
Geithner), asked the Wall Street megabanks to bail out the LTCM. Thanks to this
prompt action the world economy managed to evade an impending crisis.
The Subprime Loan Crisis － The crisis erupted in September 2008. Since
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2005 high interest rate mortgage loans had been made, targeting the low income
earners (the so-called “subprime loans”). The financial institutions bought them
up, and issued MBSs (Mortgage-Backed Securities) with them as collateral. Then
were issued new types of securities one after another, mingling other loans such as
car loans, credit card loans and so forth as collateral. Thus the US economy came
to be filled with multi-layered securities (“securitized papers”), which came to be
certified by rating agencies such as Moody’s as definitely safe securities (80
percent of the securitized papers based on the subprime mortgage loans were
ranked as AAA), and were sold all over the world. Financial institutions
eventually came to issue subprime mortgage loans without any assessment (the
so-called “Ninja Loans”), and, based on them, came to structure layered
securitized papers. … Thus the negative catenation went on. It was on the
occasion of the Lehman Shock that this fragile monetary and credit structure
collapsed, causing the world economy to plunge into the deep depression.
4. “Financial Liberalization” Considered
As explained above, financial liberalization proceeded with the impulsion of
financial capital toward liberalization as catalyst. It was a movement led by the
US commercial banks, eager to break out of conditions imposed by the GS Act in
competition with the US investment banks which, free from regulation, saw rapid
development, and by the US government which again wanted to hold the world
financial market as well as the world economy in the palm of its hands.
Motivated with this impulsion, the big figures such as Rubin, Greenspan,
Summers and politicians such as Gramm made great efforts to attenuate the GS
through extended interpretations of Section 20 and finally succeeded in enacting
the GLB Act as well as the CMF Act.
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4.1 The Geopolitical Significance
Financial liberalization accorded well with the US government’s desire to regain
world hegemony in the economic scene. The US Administrations which had
suffered miserable economic performance throughout the 1980s came to think
that finance could be a key to regain and extend US influence over the world
economy. The “Washington Consensus” taken by the IMF and the World Bank as
well as the “Shock Therapy” method adopted by the former members of the
Soviet Bloc with US economists as advisers6 also accorded with the financial
liberalization movement.
These movements, moreover, derived strong support and credibility from the
intellectual authority related to Neo-Liberalism, finance theory, and the New
Classical School as well as the ideologies such as Neo-Conservatism and the South
Christian Fundamentalism. To say nothing of these ideologies, Neo-Liberalism
also took on a very authoritarian stance, quite different from its ostensible one. As
the progenitor of “freedom”, the Neo-Liberalists did not hesitate to interfere with
foreign countries where freedom as they conceived it was judged to be lacking,
through either the “structural adjustment program” or military operations. In
this sense, Neo-Liberalism contains a sort of “Power-ism”.
In terms of political dynamics, furthermore, these movements can be said to
have proceeded hand in hand with Cleptocracy - the “quid pro quo” ties between
financiers and the financial authorities.
4.2 The Economic Significance
What kind of economic significance will financial liberalization be seen to have?
It is an extension of the markets in which the financial institutions can raise
funds at their own disposal (where securitized papers are structured,
accompanying leverage), always pursuing speculative profits by means of the
funds thus obtained. The pursuit for profit has been carried out, sometimes to
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such a degree that moral hazard was incurred.
Hedge funds have targeted a weak and fragile country, mounting speculative
attacks to make huge gains with no concern for the considerable damage to the
country concerned, ascribing the defects and failures to its economic system. In
recent years these attitudes have become blatantly evident. The “finance for the
sake of finance”, or speculative activities without any regard for the real economy,
can be characterized as “autotelism” on the part of financial capital, far from the
original role which finance should play ― the role of providing finance required
to make the real economy grow, and making the market economy run smoothly.
Thus we see the phenomenon of real economy caught up in speculative waves.
The enlargement of the SBS was also a product of the activities of governments
under the leadership of the US administration, which means some divergence
from the original role which each government should play － the pursuit of its
own economic growth. Any government should be independent of the financial
community, implementing its own policies and placing top priority on the
well-being of its people. In the movement aiming at financial liberalization, in fact,
various governments including the US government have gone hand in hand with
the financial community at the price of a stampede of hedge funds, the emergence
of multi-layered securitized papers and a catastrophic meltdown.
5. The Financial Regulatory Reform Act
The instability of the world economy recently seen appears to be attributable to the
enlargement of the SBS so that, in order to stabilize the world economy, we need to
bring it under the control of the financial authorities. This is the point recognized by
the Obama administration.
5.1 What Proceeded in the US
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Obama’s Financial Regulatory Reform Proposals ― It was in June 2009 when
President Obama made public the outline of his financial regulatory reform
proposals, aiming at repeal of the GLB and modern-day resurrection of the GS Act.
The central pillars are: (i) an enlargement of the FRB, which is to work not only
as a central bank but also as an institution to oversee systemic risk, and (ii) the
creation of the Consumer Financial Protection Agency (CFPA), to guard consumers
from financial abuse and fraudulence.
Through these institutions, securitized papers, financial derivatives, futures and
so forth should be dealt in on open and clear markets, while the activities of hedge
funds, investment banks, rating agencies and so forth could be overseen. Thus the
proposal aims at scaling down, if not abolishing, the SBS.
The Bailout and the Early Recovery of the Megabanks ― It was the Wall Street
megabanks which were rescued first and foremost through bailout with huge sums
of public money7. The story does not end here. They were soon able to make
immense profits by investing gigantic volumes of money obtainable with both the
FRB’s zero interest rate and quantitative easing (QE) policy, in the emerging
nations (such as China, Brazil and India) – the so-called “zero carry trade”. Having
repaid the public money to the government, the megabanks were to start a fierce
battle aiming at blocking Obama’s financial regulatory reform8.
The Growing Perception of Unfairness－ Contrastingly, in spite of the FRB’s
easy-money policy the US real economy cannot be said to have made much progress
towards recovery. What has concerned the US people are, among other things, the
continued high unemployment rate, the rapid increase in arrears and foreclosure
due to the bust of the housing market, which has also driven many local banks into
bankruptcy (the number reaching a record high since the S&L crisis in 1992). The
credit crunch by the local banks, in turn, has aggravated the real economy.
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The perception of unfairness has grown among the public, for the Wall Street was
instantaneously bailed out (by the Bush Administration) while the Main Street has
remained stagnant (in spite of the Obama Administration’s strenuous efforts).
5.2 The Dodd-Frank Act
The Process － After public announcement of Obama’s financial regulatory reform
proposals in June 2009, deliberations in the two houses proceeded very slowly.
On December 11, 2009 the financial regulatory reform act (the Wall Street
Reform and Consumer Protection Act) got through in the House of Representatives.
However, the Senate version which was first worked out as a discussion draft in
November 2009 was to proceed along a very difficult road thereafter. Leaving the
details to my other paper9, let us here summarize the process in the Senate:
(i) In May 2010 the Dodd Act (the Restoring American Financial Stability Act)
was deliberated.
(ii) The deliberations continued for three weeks. On May 21 at long last was
passed the Dodd Act with some slight modification.
(iii) The Conference Committee was then set up to unify the House and Senate
versions. After a few weeks’ deliberations, the committee report was adopted.
(iv) On June 30 the Dodd-Frank Act was passed in the House, while on July 15 it
finally got through the Senate.
(v) On July 21 the Act was enacted with President Obama’s signature.
The Gist of the Act － The Dodd-Frank Act covers the following.
(1) The Consumer Financial Protection Agency (CFPA)
This is to be set up within the FRB, but should remain independent. The top
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is to be nominated by the President (this reflects some compromise with the
House version and the President’s view.）
During the subprime boom many financial institutions made mortgage
loans to the low-income people without any serious screening. In consequence,
when the bubble burst lots of people were rapidly driven into default and
foreclosure. In order to prevent this state of affairs from recurring (that is, to
prevent consumers from being cheated and forced to conclude unfair
contracts), the CFPA is to be set up.
(2) Volcker Rule
This was first advocated by P. Volcker in January 2010 and supported by
Obama, and was incorporated into the Act. The rule aims at prohibiting
commercial banks from dealing in the so-called “proprietary trading”, for it
will expose the depositors’ money to risk through speculative activities by the
banks10.
(3) Lincoln Provision
This provision was first adopted by the Senate Agriculture Committee
chaired by B. Lincoln in April 2010 and was incorporated into the Act. It
aims at making derivative transactions fair and transparent by abolishing
Over the Counter (OTC) derivatives and creating an open market11.
(4) Setting up of a committee for preventing possible systemic risk
The committee is to be composed of nine members headed by the Secretary of
the Treasury.
(5) The president of the FRB of New York is to be appointed by the US President.
This aims at blocking influences from the Wall Street.
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(6) In the case of the megabanks’ bankruptcy, clearing and dissolution should be
carried out smoothly with the fund collected from the financial industry.
In short, the “TBTF” (Too Big To Fail) idea should be swept away. The
megabanks have got used to assuming that because they are huge the
government will never fail to rescue them in the event of their failure.
Otherwise the economy as a whole, they think, would be exposed to serious
crisis. Thus they are likely to run into impossible speculative activities –
serious moral hazard.
Challenging the TBTF, the provision aims at clearing financial institutions
on the brink of failure by the self-responsibility of the financial sector rather
than by the tax.
It is estimated to take a year and half for the Dodd-Frank Act to be implemented.
Each section needs interpretation, so there will be confrontation on it. The
lobbying activities are very influential and might change the nature and the
course of direction.
Moreover, should other countries – including the EU (with the UK) – fail to
follow suit, the aim of the Dodd-Frank Act will be thwarted. For finance has been
developed on the global scale, so loopholes will remain gaping. If the US
intensified regulation but other countries did not follow suit, the financial
institutions would continue risky speculative activities, shifting their headquarters
there.
And yet the Dodd-Frank Act should be welcomed, for this will be the only
feasible and effective road which might lead to financial regulation on the global
level.
Worrisome Present Situation ― As of today we need to pay attention to the
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following facts of the US economy.
Although the need to keep the activities of the financial institutions under the
control of the financial authorities has been repeatedly urged since the Lehman
Shock, it was not until July 21, 2010 that the Doo-Frank Act was at long last
enacted – only just a few months ago. It will take another year and a half,
moreover, for the Act to be effectively implemented. This means that so far
virtually no regulation has been imposed on the SBS system.
The Wall Street megabanks were rescued by the government and made huge
profits through the dollar carry trade, which were – scandalously enough –
distributed among the executives who, by contrast, have shown no interest in
contributing to the recovery of the Main Street.
These states of affairs have infuriated the common people with the impression
that all that the Administration and the FRB have done so far have been to rescue
the Wall Street, while neglecting them. This anger might appear all the more
justifiable if one comes to think of the barefaced personnel adhesion among the
FRB, the Treasury and the megabanks.
The US society faces the potential risk of serious conflict between the two
groups － the mega financial community and the mass people.
In spite of the fact that President Obama came up against serious difficulties,
he finally succeeded in enacting the Dodd-Franc Act. This is a great achievement,
and yet it is no more than one step forward. The real test of its success hinges on
the implementation from now on.
In this regard what is worrying is the fact that the approval rate for the Obama
Administration has been sharply falling, mainly because it has not succeeded in
reducing the high rate of unemployment. So at present the Republican Party is
expected to win the mid-term election in November. If so, the implementation of
the Dodd-Frank Act will entail great difficulties. Even today the Administration
has some difficulty in deciding the top-ranking posts of the new institutions to be
17
sep up by the Act. The difficulty will be much greater after the election.
6. Conclusion
We have examined financial liberalization or globalization, and the increased
instability of the capitalistic system brought about by it, focusing on the USA as a
center of the world economic system. We cannot imagine continuance of the
capitalistic system without finance. And yet there is a danger that serious
meltdowns will be repeated if the financial system is left as it is. The future of
capitalism will hinge upon how the “right capitalism” can be maintained and
developed, harnessing this restive horse.
1) The Pecora Commission made a great contribution to revealing this fact.
2) Incidentally, Geithner, the Secretary of the Treasury (Summers was a
protégé), was president of the FRB of New York. In September 2008 he forced
the Lehman Brothers to go into bankruptcy, and yet bailed out the Citi
Group with the TARP fund.
3) Gramm ran for Republican nomination in the 1966 presidential election. In
the 2008 campaign for the Presidency he was among McCain’s principal
supporters. According to some source, he would have been the Secretary of
the Treasury if McCain had been elected as President.
4) In October 2008 the UBS, which suffered a huge loss, not only received
public money (worth 6 billion Swiss francs) from, but also handed over the
bad assets (worth 72 billion Swiss francs) to, the Swiss government
5) As examples of serious financial crises which occurred in the US (albeit no
influence abroad), we may mention the S&L crisis (around 1990）and the
burst of the Dotcom Bubble (around 2001; Enron is an emblem there).
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6) The most famous, and indeed, notorious was A. Schleifer, Professor at
Harvard University (his protégé is L. Summers) in the case of Russia.
7) Funded by the TARP (the Troubled Asset Relief Program), which was hastily
proposed, and was to be used in a very ambiguous way by the Bush
Administration.
8）As representative of the lobbyists criticizing financial regulation, we may
mention the American Bankers Association, while in support of it the U.S.
Public Interest Research Group.
9) See Hirai (2010).
10) This September JP Morgan and Goldman Sachs decided to close the
proprietary trading section, paying attention to the Volcker Rule.
11) Recently the yields gained by hedge funds have shown some decline. Wary
of risks, investors are now tending to concentrate their resources in large
funds rather than small ones.
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