Today’s technology and global financial markets enable investors to take these actions very quickly with dramatic consequences, as has recently happened in some Asian countries. Another issue related to the efficient operation of market forces is that government intervention in the credit and investment decisions of banks distorts market discipline and pricing.
Such programs frequently cause banks to make less than arm’s-length investments in, and loans to, non-economic government-affiliated projects or to individuals associated with such projects. Once these loans are made, it is difficult for national supervisors to demand that banks apply prudent reserve and charge-off policies, let alone foreclose on such loans.