If you've been reading this blog over the past few days, you're not only a member of a rather select group, but you've also noticed that I've been musing on why the Financial Times hasn't called on Carlyle to provide a guarantee to holders of investments in Carlyle Capital Group as it did to Dubai and Abu Dhabi for Dubai World. Earlier posts here and here.
Suddenly last night I had a flash of insight and realized I had overlooked two critical things.
First, from the "free market" (yes the quotes mean the same as they when around "banker" here) doctrinal perspective it would be a direct violation of the teachings of Adam Smith for Calyle to provide a guarantee. Market participants are supposed to exercise careful due diligence and then bear responsibility for their actions. Interference with this sacred principle would of course undermine the very workings of the "free market" and in so doing undermine our very way of life.
This clearly explains why Carlyle isn't going to be asked to provide a guarantee.
But what about Dubai or Abu Dhabi in the case of Dubai World? How do we explain this apparent inconsistency?
Darwin's observation about the need for organisms to adapt to their natural environment or become extinct is also applicable to the financial world. UK banks (home of the FT by the way) are owed some US$ 5 billion by Dubai Inc. These banks constitute the largest foreign creditor group. If not a potentially existential threat, at least an existential inconvenience. Thus, the necessity - as with the BBA letter to Lord Davies in re Saad and AlGosaibi - to adapt certain elements of Adam Smith's teaching to the new environment.
But it would be wrong of course to ascribe purely mercenary motives. Both initiatives would also protect the reputation of the borrowers. One's good name is treasure. And this kind solicitude of lenders for the borrower is certainly evidence of purity of motives. Isn't it?
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