Robbers of the capital market
What the four-member probe committee has found to be the factors that led to the recent capital market crash has not really raised many eyebrows, because fingers were already pointed at some big business operators who also have huge stakes in the capital market.
The government-appointed probe body has also claimed to have unearthed a nexus between the top brass of the stock market regulator, the Securities and Exchange Commission (SEC).
Thousands of small investors in the capital market have thus gone broke overnight. But what is of special interest in the report is that it has again lent further credence to the very common public perception about the capital market that it was engineered by some powerful coterie.
However, in the international scene such a perception falls under the category of what is known as conspiracy theory. So, the stock market analysts' camp is also at variance with one another on the subject.
Stocks also behave like any other commodity in the market and respond to the law of demand and supply. The psychological part of market behaviour is one of the factors that play a very crucial role. Sudden spike in demand of some stocks may be artificially created by twisting the market, leading to overpricing of some stocks and triggering a mad rush for buying those by the investors. It further fuels the rise in the market index due to the continued rise in the prices of the shares.
At one stage, the prices reach their zenith, thereby pulling a huge chunk of the middle- class investors' fund from the stock market. The vested groups then cause the prices of those shares to plummet, followed by their panic sale. The crash of the entire capital market then becomes inevitable. The recent crash and the one of 1996 are generally believed to have been caused by the same coterie, which has been corroborated by the probe report.
In Bangladesh context, such distortion of the capital market is very much a possibility, because it is still a fledgling one, while a large swathe of the small investors from middle class background are inexperienced in the trade. They are drawn towards the secondary market for some quick bucks and sink their savings of a lifetime into the capital market. In other words, the nascent stage of the capital market coupled with the prevalence of amateurish investors provides the market predators with a happy hunting ground.
The probe report has attempted to come up with an explanation, though an impressionistic one, of how they could influence the market in such a manner. It is that some high-ups of the market regulator SEC have, in collusion with some influential business tycoons from both the ruling and the opposition parties, caused the debacle. Here again the proverbial ghost in the exorcist's bag itself, was a culprit!
Given its blessing, who would stop the manipulators from fulfilling their sinister design to bamboozle the poor investors out of their entire savings put in capital market? So, manipulators tinkering with the stock market for windfall gains are not just a strong possibility, but a fact of life in our corruption-ridded society.
But in the developed economies, where investors are not suckers, where they have strong rules and regulations and where laws against any manipulation or trickery is very harsh and where the regulators are not generally not so pliant and prone to corruptive influence, the probability of such engineered downturn in the stock market becomes next to impossible.
But still, stock market may crash in the very advanced economies like the Great Wall Street Crash of October 1929 that was behind the Great Depression which engulfed the entire industrialised world of the time. Similar crashes were also seen in 1987, and the last one took place as recently as 2008, that again sucked into its maw the developed Northern part of the globe as well as some developing economies in the Southern Hemisphere.
Were the global economic meltdowns triggered by New York's Wall Street? Were those mega-scale financial debacles engineered by some evil, powerful global business syndicates? In fact, there were already some conspiracy theorists who believed that some globally operating business coterie of the industrial world was behind it. However, the more universally accepted explanation has been that it was the rise in delinquencies in the subprime mortgage market, foreclosures and decline in the securities backing those mortgages.
These financial practices were thought to be great innovation of the twentieth century that promised to bring into the fold all those debtors who have practically no access to the wider credit market. As a result, popularity of this financial practice became all-engulfing, which finally turned into its own nemesis. Here no individual or vested coterie of big business was to blame. If anyone was to be held responsible, they were the ideologues of this new economic model.
However, as the investigation committee led by Ibrahim Khaled has found, we have not been another victim of western-type bursting of the financial market bubble. Rather it was, as mentioned before, a vested coterie that is alleged to have looted some Tk. 200 billion from the capital market through engineering the crash.
If, after a thorough investigation, as suggested by the probe committee, its impressionistic findings prove to be true, then its recommendations have to be implemented in full. That includes restructuring the SEC, removing the top brass involved in the scam, and bringing the manipulators with links to the ruling and opposition parties to justice.
The murky transactions by the so-called omnibus accounts and the private placement shares used as inducements to powerful quarters have to be brought under strong discipline. And there should be no prejudice against making public those involved in manipulating the capital market to their advantage. That part of the task will be the real test of the government's will to do justice to the bankrupt investors.
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