By Tom Plate

There's a poison circulating around the globe that could wind up hurting more people than terrorists ever could.

This unseen enemy doesn't blow up skyscrapers; it saps the life out of foreign markets, certain U.S. and foreign companies, and even some pension funds. It doesn't stock up on poison gas or biological weapons; its tools of mass deterioration include fraud, deception and manipulative secrecy.

Who are these unapparent and poorly understood enemies of the people?

They're greedy gremlins in pin-striped suits who squirt speculative capital, in the form of hedge funds and large-scale short-selling, at financially vulnerable targets.

This global Leviathan last surfaced most dramatically during the Asian financial crisis of 1997-99.

Fair-minded Western financial observers agree that the daunting dimension of these speculative funds are inherently destabilizing to the world economy. Since the Asian crisis, dramatic calls for curbing these predatory investment practices have been sounded by distinguished economists as well as some Western financial institutions. But all the breast-beating and hoopla notwithstanding, little reform was attempted, much less achieved.

After the crisis eased, other concerns took center stage and then, of course, came Sept. 11, when the issue was shunted to the pages of the financial press.

But while the spotlight receded, the problem did not, and in some ways it's more pernicious now. The speculators were once an identifiable mafia of multibillion-dollar behemoths about as inconspicuous as tarantulas on white bread. Today they are more decentralized, smaller and difficult to track.

Typically, they make their profits by short-selling. Funds bet that a currency or a stock will fall in value or can be pushed down rapidly simply by the process of shorting it. They make their money by profiting from misfortune — or in effect by manufacturing it. Speculative funds have no interest in the social welfare of the nation or company whose health — or prospects for recovery — is attacked.

''We're just out to make money,'' admitted a hedge-fund guru at a recent international conference, when pressed on the ethical issue.

In the current worldwide bear market, the net effect of hedge-fund shorting is actually quite profound. It serves as a continual downdraft on the level at which market prices would otherwise settle. They add weight to the wings of smaller economies and smaller companies trying to take off or simply not sink. They wager on misery; they are institutionalized engines of self-fulfilling pessimism.

Their secretive stalking comes at a time when the very integrity of Western capitalism is at issue — and this is not just the concoction of mixed-up Marxists. The practices of internationally recognized brand-name investment banks are now under scrutiny. We are not talking Ma and Pa's Corner Brokerage House; we are talking Merrill Lynch, Citigroup's Solomon Smith Barney and Credit Suisse First Boston. Also under official U.S. regulatory probing for fraudulent or questionable practices are Goldman Sachs, Morgan Stanley, Lehman Brothers, Deutsche Bank, Bear Sterns, UBS Warburg, JP Morgan Chase and others.

This is one reason why U.S. preaching about the need for institutional transparency and ethical conduct by foreign economies and businesses often triggers snickers rather than respect. The moral capital necessary for the United States to help reform what had been dubbed ''the faulty international financial architecture'' is being squandered.

The sole bright spot is the admirable professionalism of U.S. regulatory agencies that still have the knack for knocking swollen heads in the public interest. Give huge credit to the hard-working staffs of the Securities and Exchange Commission, the attorney general of New York and the New York Stock Exchange. Their investigations are promoting transparency and the public interest. Their invaluable work needs to continue unabated.

What's more, William Donaldson, the incoming SEC chairman, is soon to receive staff proposals for sweeping changes in U.S. rules governing short-selling. This vile practice, which has reached frenzy levels during this prolonged down market, must be brought under control before it explodes in the world's face. Donaldson must act.

Tom Plate, whose column appears regularly in The Honolulu Advertiser, is a professor at UCLA. Reach him at tplate@ucla.edu. He also has a spot on the Web.