From Mr William Gamble.
Sir, Whatever happened to globalisation? We used to have a flat, seamless world where capital, goods and services travelled across the miracle of the internet. Now it seems that all of this has "decoupled". According to Jeffrey Immelt, chief executive of General Electric, and other commentators, the markets of India and China are strong and independent ("China and India will shield GE from US downturn", October 29). So it does not matter that the US has a meltdown, because it will not spread.
The US subprime problems occurred for two reasons. The first was excess liquidity. This allowed a disassociation between perceived and actual risk. The second reason was clear, accurate information. Financial engineering did spread the risk, but also reduced transparency and increased the asymmetries associated with any debt.
What Mr Immelt and other commentators ignore is that these problems are exacerbated in emerging economies where information does not move efficiently or is actively suppressed. China and India have been awash with the same excess liquidity as developed countries. The lack of credit reporting, efficient courts, private banks or even free speech - in short, accurate and timely information - has so far buried potential issues. This does not mean that they are not there. Both China and India are struggling with overheated economies and unstable markets that are often unresponsive to government efforts to control them, or even to reality.
There are housing booms in more than 30 countries. Chinese companies are gambling with their cash flows. The Indian stock market can move more than 9 per cent in one day from a slight regulatory adjustment.
What is worse is that the bankruptcy system, the plumbing of economics, is either non-existent or dysfunctional in all but the most highly developed economies. If things go south, which in time they always do, putting these economies back together will be a long and difficult process.
William Gamble,
Emerging Market Strategies,
East Providence, RI 02914, US