hot money works like a waterfall. money flows from lower yield to higher yield. yen carry trade. dollar carry trade. americans do. asians do. europeans do. lending to developing countries who must raise interest rate to tame inflation. suddenly once a poor country is flooding rapidly with so much hot money. instead of strenthening foundation of their economy and improving living standard of average Joes and fixing political/social/educational problems, corruption creeps into the core of their system. pouring money into easy investment vehicles like mbs and stock market. plus credit market boom, spending binge, low saving. very typical to go for high leverage risky business model for highly export driven fast growing economy. when the hot money leaves, the country falls hard. IMF is called and they take away everything worth from the country... starting with gold from banks.