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When financial assets and transactions grow faster than growth in the output of real wealth, it is a strong indication that finance capitalism has taken hold. The returns to the money system escalate and the wages of working people decline. The biggest profits are going to those who deal in pure finance. For 1996, the shareholders of the seven largest U.S. money center banks reaped an average total return of 44 percent. The 24 largest U.S. diversified financial services companies yielded their shareholders an average total return of 38.4 percent. Mutual funds specializing in finance averaged a 26.5 percent return, besting all other industry categories by a wide margin. But funds specializing in much touted technology stocks came in at 21 percent.

The term �international capital flow� used to conjure up images of large ships transporting products, machine tools, and capital goods from one country to another to add to productive capacity. Most often, however, it involves nothing more than a bank transferring some numbers from one account to another-quite possibly solely within its own computer.

Creating �Financial Bubbles�

In today�s world, every financial market on the planet is linked to the same computer system. Money managers all around the world sit in front of their computer screens, watching prices move. If prices are moving up especially fast in a particular market, others want to be in on the action. They start ompeting to buy stocks in that market. The prices then rise even more quickly, creating what is called a financial �bubble.�

One example of a speculative �bubble� economy bursting was provided recently in Albania, which suffered a national crisis brought on by the collapse of fraudulent investment schemes. Westerners wise in the ways of the market were bemused by the naivet� of the Albanians who fell for �investment� schemes promising returns as high as 25 percent a month with no real business activity behind them.

Using the classic pyramid scam, the perpetrators used money from new investors to pay the promised returns to earlier investors. The result was a national speculative frenzy. Farmers sold their flocks and urban dwellers their apartments to share in the promised bonanza of effortless wealth. The inevitable collapse sparked widespread riots, arson, and looting when the Albanian government failed to make up the losses.

Those inclined to laugh at the innocence of the Albanians should first consider their own response to the promises of those who propose investing social security contributions in a stock market that even Alan Greenspan, chairman of the Federal Reserve, says is substantially over valued. Such speculative financial bubbles �whether in stock market or currency pricing�that involve bidding up the price of assets far beyond their underlying value are little more than a sophisticated variant of the classic pyramid scam.

Betting on bubbles is a favorite pastime in the big cyberspace casino known as the global financial market. The stock markets of newly emerging industrial countries are among the bubble-betters favorites. When stock prices soar on the exchanges of countries such as Mexico, Malaysia, and Thailand, investment advisors talk about the high rates of return available in emerging markets.

These rapid increases in share prices are in part a function of booming economies (based on gross domestic product), but they also reflect that the total market for shares in these countries is relatively small. When outside investors start bidding feverishly on a finite pool of stocks, the price goes up. It�s a basic law of the market.

When Bubbles Burst

Of course, bubbles have a tendency to burst. And when financial bubbles burst, the money flows out even faster than it flowed in and prices then plummet. That is what we saw in the Mexican peso crisis. The experts say that probably no more than 10 percent f the $70 billion that flowed into Mexico over five years during the boom went into anything resembling productive investment. Most of it was used to pay off other foreign debts, import luxury goods, and to finance capital flight. The big losers were the working and middle classes. Wall Street bankers and investment houses holding peso denominated stocks and bonds turned to President Clinton for help, who assembled a bailout package of loans and guarantees that