Conspiracy or Groupthink?

Blaming the wicked West for the economic crisis

Eastern Europe has plenty of conspiracy theories, but the truth is more prosaic: markets are usually wrong, often hugely so. When greed trumps fear they are over-enthusiastic, believing all kinds of positive nonsense and pouring money into dodgy companies and countries. Then the tide turns and they overreact, dumping perfectly good assets in an attempt to get their books in order.

Anyone tempted by the idea that outside conspiracy is to blame for eastern Europe’s woes should first reflect on the past. Was it an outside conspiracy that led supposedly sane Western institutions to lend tens of billions of dollars to Russian companies notable for their weak corporate governance and cash-splattered business models?

The right word for this is not “conspiracy”. Something like “groupthink” or the “madness of crowds” would be a better term. The wise investors who bailed out of the Russian short-term treasury bill market in early August 1998 made a packet. Those who stayed in lost a fortune. They left for the airport, in one case vowing that they would rather “eat nuclear waste” than invest in Russia again.

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