The Three Marketeers

Economist heroes? It sounds silly unless you understand how close we came to economic meltdown last year. This close

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Greenspan jokes that Rubin, with his background in arbitrage, may be slightly more skeptical because of his experiences with market imperfections. But they all agree that trying to defy global market forces is in the end futile. That imposes a limit on how much they will permit ideology to intrude on their actions. So despite different political backgrounds, they have the ability, rare in Washington these days, to preclude partisan considerations from their discussions. In the same way that the threat of mutually assured destruction helped Kissinger replace Washington ideology with Realpolitik, the shadow of a massive economic meltdown has helped the committee sell a market-driven policy that could be labeled Realeconomik.

Yet in places like Malaysia, where one of those market imperfections led to a collapse that has impoverished millions, the intellectual beauty of Realeconomik is less appreciated. And the committee's fire brigade, the IMF, has been harshly accused of pumping gasoline on the flames. Faced with currency runs in many nations last year, the IMF pushed governments to raise interest rates (to persuade investors to hold on to their currencies) and slash deficit spending. But the IMF now says the formula may have been too harsh. The worsening of the crisis, explains critic Jeffrey Sachs, from Harvard's Institute for International Development, was "a predictable consequence of draconian measures that increase panic rather than reduce panic."

The IMF has taken particular heat because even as these nations suffer, the U.S. and Europe continue to grow. The committee believes that the IMF remains a key international tool, especially as it works to clean up the abuses that led to the current mess and makes it easier for investors to get back into those developing markets.

That means trying to reduce volatility where possible. Many countries are at the mercy of international lenders who can decide, if they feel nervous, to jerk billions of dollars from country to country. This would be like having your bank pull your mortgage because your banker heard you'd had a bad day. The solution to the problem, the men believe, is more honesty on the part of borrowers--so banks know what they are getting into--and more caution on the part of banks. While some economic thinkers--notably Soros and Malaysia's Mahathir--have lobbied for more dramatic controls, Rubin warns that simply locking capital in place can often become a substitute for much needed reform, delaying an inevitable correction. As for the impact of speculators, who have been torched by politicians around the world, Rubin says they are a part of the crisis but a much less important factor than the real economic problems of the countries they hit.

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