In recent months, there has been substantial negative publicity about financial markets. One might draw the conclusion that financial markets are fundamentally bad.

This conclusion would be very wrong.

Let me illustrate with a comparison of two entrepreneurs. In his autobiography, Mohammed Yunus, founder of the Grameen bank, which makes small (often less than $100) loans to entrepreneurially minded people in poor countries, cites the example of a young mother who made bamboo stools.

Because she did not have 22 cents to buy the materials to make the stools, she had to get material from a middleman who required that she sell the stools to him. The middleman only allowed her a 2-cent profit on each stool.

Contrast that story with the story of a newly minted MBA from Stanford with no money who wanted to start his own business. He used a little-known investment vehicle known as a search fund. This financial fund loaned him money to find, buy and improve an undervalued business. In return he had to share the profits with the fund but still retained enough to make himself a millionaire.

Financial markets allowed the poor person in the United States to come out of poverty. The lack of financial markets in Bangladesh consigned people to poverty.

As Mohammed Yunus has demonstrated many times with the Grameen bank, it is the small and poor who can benefit most from financial markets. His bank has helped thousands of people emerge from poverty.

Financial markets also allow entrepreneurs with better ideas to take on giant corporations. In the United States, half the top 20 firms in 1999 were not in the top 20 in 1985. In Germany, only 20 percent of the top firms in 1999 were not in the top 20 in 1985. Until recently, financial markets in Germany were substantially more limited than those in the United States. Although it is true that suppliers of money require high returns to finance high-risk ventures, the mere existence of financial markets makes entrepreneurship possible.

Functioning financial markets require a number of conditions, but a critical one is the existence of clearly defined property rights enforceable in a court system that is blind to wealth and status. Hernando de Soto, who has extensively studied poverty in emerging markets, attributes much poverty to the inability of poor entrepreneurs to get financing. He asserts that the key reason they can't get financing is because they cannot get clear title to the homes they built and lived in for years (in many poor neighborhoods in Latin America, these homes are built on encroached land around cities).

Hernando de Soto finds that much poverty could be eliminated by giving the poor clear property rights to their homes, which could then be used as collateral on loans.

Financial markets undoubtedly have problems. But they also provide the greatest benefit to the poorest around us. The rich either provide their own financing or have access to capital through connections or position. If financial markets work, even poor people who effectively demonstrate ability and resourcefulness can buy homes and start businesses.

To put heavy-handed rules and restrictions on these markets as a result of recent abuses may end up hurting the very people the laws are meant to help.