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Wolf: Fear Makes a Welcome Return

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Writing in the FT today, Martin Wolf puts forward the argument that the heightened caution on the markets caused by the sub-prime mortgage fiasco may not necessarily be at terrible thing. As any regular reader of this blog knows, the voracious appetite for political risk in Russia on behalf of investors, partially fueled by the recent period of cheap money and euphoria, has arguably created a geopolitical distortion whereby the government can partially nationalize assets and harass foreign investors with impunity – yet see no consequence as the capital continues to flow in. Martin Wolf, Financial Times:

Financial markets, and particularly the big players within them, need fear. Without it, they go crazy. Moreover, it is impossible for outsiders to regulate a global financial system riddled with conflicts of interest and dominated by huge derivatives markets, massive trading by highly leveraged hedge funds and reliance on abstruse mathematics and questionable statistical models. These markets must regulate themselves. The only thing likely to persuade them to do so is the certainty that the players will be allowed to go bust.

Wolf also takes a shot at Jim Cramer, who went absolutely bonkers during an on-air segment that must be seen to be believed (the video is attached below). In this clip, Cramer gives a new definition to “irrational exuberance.”

Not so Jim Cramer, hedge fund manager and television pundit, who declared last Friday that chairman of the Federal Reserve, Ben Bernanke, “is being an academic!…My people have been in this game for 25 years. And they are losing their jobs and these firms are going to go out of business, and he’s nuts! They’re nuts! They know nothing! . . .  The Fed is asleep.” So capitalism is for poor people and socialism is for capitalists. This view is not just offensive. It is catastrophic.