Irwin, Neil (2013), The Alchemists, the penguin press, new york, 2013
1867 Walter Bagehot
[p.28, pp.32-34]
[p.28]
... an Englishman named Walter Bagehot
...
Indeed, most historians know him best for his work more or less inventing the concept of the English constitution as an accumulation of ideas rather than a written document. Yet among central bankers he has achieved iconic status for his 1873 book Lombard Street: A Description of the Money Market, an analysis of the demise of Overend & Gurney and the Bank of England's response.
[pp.32-34]
The detail may vary, but this type of vicious cycle is at the core of any financial panic, whether in 1866 or 1929 or 2008. If not stopped, it can shutter businesses on a mass scale and wipe out the savings of nation. In any case, it has the psychological effect. As Bagehot describe it, "The peculiar essence of our banking system is an unprecedented trust between man and man. And when that trust is weakened by hidden causes, a small accident may greatly hurt it, and a great accident for a moment may almost destroy it."
On Threadneedle Street, the leaders of the Bank of England viewed it as their job to stop that cycle cold. Their goal in such situation wasn't to act like private bankers, hoarding cash for themselves, but to prevent the banking system as a whole from shutting down. On the morning of Black Friday, May 11, 1866, the bankers of London lined up at the Bank of England's Discount Office. "The bankers accustomed to pledge their securities with Overend and Gurney went wild with fright," according to one contemporary account, "besigned the Bank of England and the Chancellor of the Exchequer and communicated their apprehensions to the public...for four or five hours it was believed that half the banks in London would fail." Bank governor Henry Lancelot Holland had to decide whether to fulfill the demands for liquidity--which would mean exposing his institution to far greater risk than it had taken in the past.
His decision was, in effect, to extend credit as far as the eye could see, and damn the naysayers--and there were naysayers, including the Court of the Bank of England, the equivalent of its board of directors. The strategy was, at its core, simple: If a banker or broker or trader had a bill or other security that would be valuable in a time the markets were functioning normally, it could be pledged at the Bank of England for short-term cash--but with a "haircut," or a discount on what it was thought to be truly worth. "Every gentleman who came here with adequate security was liberally dealth with," Holland said later.
It was essentially using the ability of the Bank of England to issue pounds as a barrier against the further spread of the crisis. Holland had to receive special permission from the chancellor of the exchequer, William Gladstone, to surpass the legal caps on the Bank of England's lending. The first day, it extended £4 million in credit. Over the ensuring three months, £45 million was extended, "by every possible means...and in modes which we had never adopted." Recall that this was a time when all the bank deposits in Britain totaled around £90 million. Relative to the size of the British economy at the time, it would have been the equivalent of the Federal Reserve extending about $3.5 trillion in the aftermath of the 2008 Lehman Brothers crisis.
The panic gradually subsided, preventing the economic ruin of an empire. Months later, Holland described the Bank of England's actions in this way: "Banking is a very peculiar business, and it depends so much upon credit that the very least blast of suspicion is sufficient to sweep away, as it were, the harvest of a whole year.... This house exerted itself to the utmost--and exerted itself most successfully--to meet the crisis. We did not flinch from our post."
From these events, Bagehot drew a series of lessons now known as Bagehot's dictum. In a panic, he wrote, a central bank must take its resources and "advance it most freely for the liabilities of others. They must lend to merchants, to minor bankers, to 'this man and that man,' whenever the security is good."
The shorthand version, familiar to all present-day central bankers, is this: Lend freely, on good collateral, and, as Bagehot also specified, charge a penalty interest rate, "that no one may borrow out of idle precaution without paying well for it." It's a simple guideline, but a powerful one. The central bank should open its doors, and its vaults, using its vast stores of the one thing in demand--cash--to stop that vicious cycle. And it should land only on good collateral, which is to say, against securities whose values have been depressed only by the atmosphere of panic, not by fundamentals. However, the bank should charge a high enough interest rate on these loans that borrowers don't take unjustified advantage of them.
But there are a couple of other lessons from the collapse of the Overend & Gurney that don't fit neatly into Bagehot's dictum. First, even if a central bank moves aggressively to stop a financial panic, it still may not be enough to prevent a nasty economic downturn. Because the Bank of England's lending during the panic was directed only at firms that were illiquid--and thus was little good for those that were insolvent--plenty of banks failed besides Overend: the Bank of London, Consolidated Bank, the British Bank of California. And whenever banks fail and credit tightens, businesses of all types are forced to pull back on their activity. The London, Chatham and Dover Railway was building major rail lines in Canada and the Crimea financed by bills of exchange when Overend & Gurney went under. The projects collapsed following the tightening of credit. The funding for a rail line under the Thames evaporated as well.
With no lending available, ironworkers and coal miners and shipbuilders and others who depended on business expansion to make a living found themselves out of work on a mass scale. Economic statistics for this era are unreliable, but estimate by a trade union put the UK unemployment rate at 2.6 percent in 1866, and at 6.3 percent in 1867 after the credit freeze.
£
(Irwin, Neil (2013), The Alchemists, the penguin press, new york, 2013 )
(The Alchemists : three central bankers and a world on fire, Neil Irwin, p.28, pp.32-34 )
Irwin, Neil (2013), The Alchemists, the penguin press, new york, 2013
1992 broken the Bank of England
[p.74]
In the first century AD, a merchant from Rome could travel to Londinium via Colonia Claudia Ara Agrippinensium and Lutetia Parisorum and use the same denarii to pay for goods at each stop on his way, the German economist Otmar Issing noted. That is, he could travel from Rome to London via Cologne and Paris and use the same currency. The twenty centuries since then, however, have been less kind to those who might benefit from a Europe under a single political and financial authority, the best efforts of Charlemagne and Napoleon notwithstanding.
(Irwin, Neil (2013), The Alchemists, the penguin press, new york, 2013 )
(The Alchemists : three central bankers and a world on fire, Neil Irwin, p.74)
, Stan Druckenmiller,
[pp.72-74]
Behind the thick walls of the Bank of England, the traders were fighting a battle. And they were losing.
They were buying pounds, with furious speed and on a vast scale. First 200 million pounds, then another 300 million pounds. By 8:40 a.m. that morning of Wednesday, September 16, 1992, they were up to 1 billion pounds. They were trying to prop up the value of their currency on global markets, but no matter how many pounds they bought, the numbers on their screens barely budged. What they didn't know was that the night before and an ocean away in New York, financier George Soros had given his chief portfolio manager, Stan Druckenmiller, a remarkable order: Sell [British pound] sterling, as much as you can. And don't stop.
Druckenmiller had concluded that the British government was no longer going to be able to hold its currency at the level it had pledged to two years earlier under the European Exchange Rate Mechanism. The idea was that the nations of Europe could boost their economies if their different currencies maintained a steady value relative to the others'. It would be much easier for a company to do business across Europe, for example, if it could be confident that the deutschmark [German currency] and the franc [French currency] and the lira [Italian currency] wouldn't constantly fluctuate against each other. When, in one of Margaret Thatcher's final acts as prime minister, Britain joined the exchange rate mechanism [ERM], it committed to keeping the value of a pound sterling at 2.95 deutschmarks, plus or minus 6 percent.
But Druckenmiller and Soros were convinced that the underlying value of the pound was in fact below that, amid inflation and weak growth in the UK. They were betting that the currency would inevitably fall to levels that more closely matched its fundamentals, and that the government couldn't afford to keep its value artificially high by entering the market to buy sterling. Finland and Italy had already dropped out of the exchange rate mechanism under just such pressures, sending their currencies plummeting and making vast sums for anyone who had bet accordingly. Mervyn King, then the Bank of England's chief economist, had gone to Frankfurt two days earlier, arriving at the Bundesbank amid Wagnerian bursts of thunder and lighting to plead with it for help maintaining the peg, a trip he later called "probably one of the world's most unsuccessful diplomatic missions." The endgame was coming for Britain.
The two investors decided to sell sterling "short"--that is, to sell borrowed pounds, which they would repay later, after the pound dropped. "Go for the jugular," Soros told Druckenmiller that Tuesday night.
The Quantum Fund, which they ran, sold pounds to anyone who could buy--the Bank of England when the London markets were open, investors around the world the rest of the time. Soon others started to dump sterling too. The Bank of England could keep buying, but the more it bought, the more British taxpayers stood to lose if the nation eventually did abandon its currency peg.
That Wednesday, Prime Minister John Major's government made an emergency decision to hike interest rates a stunning 2 full percentage points, then hiked them by another 3 percentage points on Thursday. It hoped to reverse the sell-off and leave the speculators with egg on their face, even at the risk of devastating British economic growth. But Soros and other global investors showed no hesitation. The selling continued unabated.
At 7:40 p.m. London time the evening of September 17, Chancellor of the Exchequer Norman Lamont stood before the British Treasury. "Massive speculative flows have continued to disrupt the functioning of the exchange-rate mechanism," he told the assembled cameras. He had called a meeting of European finance ministers to discuss what to do next. "In the meantime the Government has decided that British's best interests would be best secured by suspending our membership of the ERM with immediate effect."
The pound immediately plummeted. George Soros and Stan Druckenmiller had broken the Bank of England, made a billion dollars for themselves and their investors, and become legends in the world of finance. But the exit of Britain, Italy and Finland from the exchange rate mechanism meant that if the very different nations of Europe were to create a single unified financial system, in which money could flow as freely between nations as it does among U.S. states, it would take something more binding than a mere promise.
It would take the euro.
(Irwin, Neil (2013), The Alchemists, the penguin press, new york, 2013 )
(The Alchemists : three central bankers and a world on fire, Neil Irwin, pp.72-74 )
____________________________________
Sebastian Mallaby., More money than god : hedge funds and the making of a new elite, 2010.
pp.167-168
In the wake of sterling's fall, speculators mounted an attack on the French franc, but this time Druckenmiller believed that the central bank would win out against the markets. Unlike British homeowners, French families were not exposed to floating mortgage rates, and the French state had myriad of ways of subsidizing its people: As a result, it would be easier for the French to fight off speculators with temporary interest-rate hikes than it had been for the British.
p.168
Acting on this theory, Druckenmiller bought armfuls of French bonds, which soared in 1993, helping to explain why Quantum's extraordinary 69 percent return in the year of the sterling bet was followed by a 63 percent return in the year of the sterling bet was followed by a 63 percent return the year after.
p.168
But Quantum's greatest post-sterling coup was also the most discreet. Thanks to Robert Johnson, who had by now joined the fund full-time, Quantum shorted the Swedish krona before its devaluation in November 1992, again pocketing upward of $1 billion. Having learned a lesson from the publicity following the sterling trade, Soros and Druckenmiller make sure that nobody spoke publicly about their killing in Sweden.51
Robert Johnson,
p.436
51. The Swedish trade was conceived by Robert Johnson. On the secrecy of the Swedish trade, Druckenmiller recalls, “By then at least we learned to keep our mouth shut.”
p.169
In Belgium, foreign affairs minister Willy Claes chimed in that Anglo-Saxon financiers were plotting to divide Europe.53
p.126
Jim Chanos, the short seller who worked with both Soros and Robertson, vouched for Robertson's superior grasp of stocks; but no macro trader would have said the same about Robertson's grasp of interest rates or currencies.46
pp.131-132
Paul Tudor Jones II, the Patton aficionado and Soros friend
p.131
After studying undergraduate economics at the University of Virginia, Jones landed an apprenticeship with a cotton trader in New Orleans, then moved after two years to the New York Cotton Exchange.
p.137
The big three ── Soros, Steinhardt, and Robertson ── all lost heavily in the 1987 crash, but Bruce Kovner and Louis Bacon both fared well, though they made less money than JOnes did.
p.137
The big three and the junior three shared the expectation of a market reversal; they had discussed the prospect frequently among themselves, and Jones had even tried to persuade Julian Robertson to run a portforlio of stock shorts for him.18
(More money than god : hedge funds and the making of a new elite / Sebastian Mallaby., 1. hedge funds., 2. investment advisors., HG4530.M249 2010, 332.64'524──dc22, 2010, )
____________________________________
Sebastian Mallaby., More money than god : hedge funds and the making of a new elite, 2010.
currency of Thailand
pp.198-207
pp.197-198
To run these new start-ups, Soros recruited new talent, including a Princeton-trained economist named Arminio Fraga.
When the two men met in early 1993, Fraga, a Brazilian, had just left a position as a deputy governor at his country's central bank.
Within a few days, Soros had offered him a partnership.
Arminio Fraga.
a Brazilian, had just left a position as a deputy governor at his country's central bank.
p.198
For the next four years at Soros, Fraga performed the benign function of hedge funds: to finance emerging economies that were shunned by traditional investors. He bought the bonds of big Latin countries such as Brazil and Venezuela; he branched out into exotica such as Moroccan loans; he bought shares in Brazilian utilities, which were absurbly cheap by international standards.
p.198
Then in late 1996 Fraga attended a talk by Stan Fischer, the number two at the International Monetary Fund. The mood was mostly upbeat: Mexico's currency had recovered from its crisis, and emerging markets were booming. Still, somebody asked Fischer the question “Who do you think is the next Mexico?”
p.198
“I'm not sure there's another one out there at the moment”, Fischer answered. “But I do see some imbalances in Asia. That might be interesting to look at.”
That comment, Fraga recalled later, “put a little light in my mind”.10 A few weeks afterward, Fraga read a joint IMF-Federal Reserve paper titled “The Twin Crises”, which laid out in terrifying detail how a currency collapse could interact with the collapse of a banking system.11
p.198
Casting his mind back to Fischer's remarks, Fraga approached Druckenmiller.
“Do you mind if I go and take a look at what is going on in Asia?” he asked him.
“Sure”, came the answer. “Go”.12
p.198, p.199
in Jaunary 1997, Fraga landed in Thailand
local officials, company executives, and economists,
the country fitted the double-crisis model laid out in the IMF-Fed paper.
If the foreigners tired of lending to Thailand, the country would have to export enough not only to cover its import bill but also to repay outsiders. To boost exports and cut imports, the Thai baht would have to fall ── sharply.
p.199
The tipping point for Fraga came during a visit to the Bank of Thailand. Together with David Kowitz, Soros's expert on Asian equities, and Rodney Jones, an economist who worked for Soros in Hong Kong, Fraga was granted an audience with a high-ranking official at the central bank.
p.199
Invoking his own experience as the deputy governor of Brazil's central bank, Fraga offered some thoughts on the dilemma that Thailand confronted:
p.200
Fraga had a mild manner, and his Brazilian background helped; he seemed more like a benign emerging-market peer than a menacing Wall Street predator. So the official looked at Fraga and gave him an answer that was at once honest and naïve.
p.200
The official repeated his statement, and the Soros team got what it was looking for. Their host had told them that he knew the game was up: He had confessed and reconfessed his nakedness. Whatever the official pronouncements on Thailand's commitment to its exchange-rate peg, it was only a matter of time before the baht was devalued.
p.200
After a stop in South Korea, Fraga returned to New York and reported back to Druckenmiller.
p.200
The big man listened to Fraga's story and quickly approved a trade, and over the space of a few days in late January, the Soros team sold short about $2 billion worth of the Thai currency.14
The selling was both a prediction of a crisis and a trigger that could bring it on:
p.201
The Soros team had taken out baht loans of six months' duration and had locked in the low interest rates that had existed before the government hiked them. Secure in their positions, Druckenmiller and Fraga could afford to wait until the end of July for the inevitable to happen.16
pp.201-202
the morality of speculation in developing countries: If currencies crashed, millions of innocents would be forced into desperate poverty.19
p.203
The new position still represented only a third of the Soros funds' capital, a fraction of what Druckenmiller could have sold if he had leveraged up aggressively. But now Druckenmiller was no longer the only player in the game; Thai investors were leading the charge out of the baht, and other hedge funds were following. Paul Tudor Jones, who spoke with Druckenmiller several times each day, was quick to put on a trade, as did several of the other macro funds from the tight-knit group around him. The biggest player after Druckenmiller was probably Julian Robertson's Tiger, which built a short position in the baht that eventually came to $2 billion.21
p.204
On May 15, the day after Druckenmiller upped the ante, the Thai authorities forbade all banks from lending baht to anyone outside the country. This put short sellers in a bind: They could no longer borrow baht in order to sell them unless they secured the loans offshore at punitive interest rates. Tiger, for example, had financed some of its positions by borrowing baht on a short-term basis, figuring that it could roll over the loans as they came due; now it was forced to renew them at vastly higher interest rates:
“”─“”‘’•“”
p.205
But by doggedly calling the banks that executed the government's sell orders in the forward markets, Jones had pieced together the alarming rate at which real reserves were dwindling. By his reckoning, the Bank of Thailand had used up $21 billion worth of reserves in May alone, a stunning two thirds of its war chest.26
p.206
Over the next three months, it fell by 32 percent against the dollar. The Soros funds gained about $750 million from the devaluation, and Julian Robertson gained perhaps $300 million;29 meanwhile, Thailand's output collapsed by 17 percent from its peak, destroying businesses and jobs and plunging millions into poverty. By an uncanny coincidence, July 1, 1997, was the day when Britain ceded control over Hong Kong.
The council on foreign relation (CFR) is an independent, nonpartisan membership organization, think tank, and publisher dedicated to being a resource for its members, government officials, business executives, journalists, educators and students, civic and religious leaders, and other interested citizens in order to help them better understand the world and the foreign policy choices facing the United States and other countries. Founded in 1921, CFR carries out its mission by maintaining a diverse membership, with special programs to promote interest and develop expertise in the next generation of foreign policy leaders; convening meetings at its headquarters in New York and in Washington, D.C., and other cities where senior government officials, member of Congress, global leaders, and prominent thinkers come together with CFR members to discuss and debate major international issues; supporting a studies program that fosters independent research, enabling CFR scholars to produce articles, reports, and books and hold roundtables that analyze foreign policy issues and make concrete policy recommendations; publishing Foreign Affairs, the preeminent journal on international affairs and U.S. foreign policy; sponsoring Independent Task Forces that produce reports with both finding and policy prescriptions on the most important foreign policy topics; and providing up-to-date information and analysis about world events and American foreign policy on its website, www.cfr.org.
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(More money than god : hedge funds and the making of a new elite / Sebastian Mallaby., 1. hedge funds., 2. investment advisors., HG4530.M249 2010, 332.64'524──dc22, 2010, )
____________________________________
Joseph E. Stiglitz, Globalization and its discontents revisited, 2018, 2002
─ p.192
I believe that capital account liberalization was the single most important factor leading to the crisis.
─ pp.217-218
It is no accident that the two large developing countries spared the ravages of the global economic crisis ── India and China ── both had capital controls.
p.183
When the Thai baht collapsed on July 2, 1997, no one knew that this was the beginning of the greatest economic crisis since the Great Depression ── one that would spread from Asia to Russia and Latin America and threaten the entire world. For ten years the baht had traded at around 15 to the dollar; than overnight it fell by about 25 percent. Currency speculation spread and hit Malaysia, Korea, the Philippines, and Indonesia, and by the end of the year what had started as an exchange rate disaster threatened to take down many of the region's banks, stock markets, and even entire economies.
p.183
The crisis is over now, but countries such as Indonesia will feel its effects for years. Unfortunately, the IMF policies imposed during this tumultuous time worsened the situation. Since the IMF was founded precisely to avert and deal with crises of this kind, the fact that it failed in so many ways led to a major rethinking of its role, with many people in the United States and abroad calling for an overhaul of many of the Fund's policies and the institution itself. p.183
Indeed, it retrospect, it became clear that the IMF policies not only exacerbated the downturns but were partially responsible for the onset: excessively rapid financial and capital market liberalization was probably the single most important cause of the crisis, though mistaken policies on the part of the countries themselves played a role as well.
pp.183-184
Today the IMF acknowledges many, but not all, of its mistakes ── its officials realize how dangerous, for instance, excessively rapid capital market liberalization can be ── but its change in views comes too late to help the countries afflicted.
p.186, p.187
September 1997 in Hong Kong for the annual meeting of the IMF and the World Bank.
Meanwhile, the leaders of the Asian countries, and especially the finance ministers I met with, were terrified. They viewed the hot money that came with liberalized capital markets as the source of their problems. They knew that major trouble was ahead: a crisis would wreak havoc on their economies and their societies, and they feared that IMF policies would prevent them from taking the actions that they thought might stave off the crisis, at the same time that the policies they would insist upon should a crisis occur would worsen the impacts on their economy.
p.187
They felt, however, powerless to resist. They even knew what could and should be done to prevent a crisis and minimize the damage ── but knew that the IMF would condemn them if they undertook those actions and they feared the resulting withdrawal of international capital.
p.187
In the end, only Malaysia was brave enough to risk the wrath of the IMF; and though Prime Minister Mahathir's policies ── trying to keep interest rates low, trying to put brakes on the rapid flow of speculative money out of the country ── were attacked from all quarters, Malaysia's downturn was shorter and shallower than that of any of the other countries.3
p.187
; if they all imposed capital controls ── controls intended to prevent the damage as the speculative money rushed out of their countries ── in a coordinated way, they might be able to withstand the pressures that would undoubtedly be brought down upon them by the internatinal financial community, and they could help insulate their economies from the turmoil.
p.187
the crisis spread, first to Indonesia, and then, in early December, to South Korea. Meanwhile, other countries around the world had been attacked by currency speculators ── from Brazil to Hong Kong ── and withstood the attack, but at high cost.
p.188
But whereas in the early days of its transformation it had tightly controlled its financial markets, under pressure from the United States it had reluctantly allowed its firms to borrow abroad. But by borrowing abroad, the firms exposed themselves to the vagaries of the internatinal market: in the late 1997, rumors flashed through Wall Street that Korea was in trouble. It would not be able to roll over the loans from the Western banks that were coming due, and it did not have the reserves to pay them off. Such rumors can be self-fulfilling prophecies. I heard these rumors at the World Bank well before they made the newspaper ── and I knew what they meant. Quickly, the banks which such a short time earlier were so eager to lend money to Korean firms decided not to roll over their loans. When they all decided not to roll over their loans, their prophecy came true: Korea was in trouble.
p.190
The breadth of the conditions meant that the countries accepting Fund aid had to give up a large part of their economic sovereignty.
p.190
In each case, it announced to the world that there were fundamental problems that had to be addressed before a true recovery could take place. Doing so was like crying fire in a crowded theater: investors, more convinced by the diagnosis of the problems than by the prescriptions, fled.5 Rather than restoring confidence that would lead to an inflow of capital into the country, IMF criticism exacerbated the stampede of capital out. Because of this, and other reasons to which I turn shortly, the perception throughout much of the developing world, one I share, is that the IMF itself had become a part of the countries' problem rather than part of the solution.
p.192
I believe that capital account liberalization was the single most important factor leading to the crisis. I have come to this conclusion not just by carefully looking at what happened in the region, but by looking at what happened in the almsot one hundred other economic crises of the last quarter century. Because economic crises have become more frequent (and deeper), there is now a wealth of data through which one can analyze the factors contributing to crises.7 It has also become increasingly clear that all too often capital account liberalization represents risk without a reward.
p.194
the data showed that capital flows were pro-cyclical.
That is to say that capital flows out of a country in a recession, precisely when the country needs it most, and flows in during a boom, exacerbating inflationary pressures. Sure enough, just as the time the countries needed outside funds, the bankers asked for their money back.
p.194
Before liberalization, Thailand had severe limitations on the extent to which banks could lend for speculative real estate.
p.194
It also knew that throughout the world speculative real estate lending is a major source of economic instability.
p.195
U.S. Treasury as the IMF's largest shareholder and the only one with veto power
p.198
With high levels of indebtedness, imposing high interest rates, even for short period of time, is like signing a death warrant for many of the firms ── and for the economy.
p.205
In 1997, Japan offered $100 billion to help create an Asian Monetary Fund, in order to finance the required stimulative actions. But Treasury did everything it could to squelch the idea. The IMF joined in.
p.206
The squashing of the Asian Monetary Fund is still resented in Asia and many officials have spoken to me angrily about the incident. Three years after the crisis, the countries of East Asia finally got together to begin, quietly, the creation of a more modest version of the Asian Monetary Fund, under the innocuous name of the Chang Mai Initiative, named after the city in nothern Thailand where it was launched.
p.215
Malaysia was severely criticized during the crisis by the international financial community. Though Prime Minister Mahathir's rhetoric and human rights policies often leave much to be desire, many of his economic policies were a success.
p.215
Malaysia was reluctant to join the IMF program, partly because officials there did not want to be dictated to by outsiders but also because they had little confidence in the IMF.
p.216
The government also imposed tight limits on transfer of capital abroad by residents in Malaysia and froze the repatriation of foreign portfolio capital for twelve months. These measures were announced as short term, and were carefully designed to make it clear that the country was not hostile to long-term foreign investment.
p.216
In fact, the outcome was far different. My team at the World Bank worked with Malaysia to convert the capital controls into an exit tax.
p.217
, so we at the World Bank encouraged Malaysia to drop direct controls and impose an exit tax. Moreover, the tax could be gradually lowered,
p.217
The controls allowed it to have lower interest rates than it could otherwise have had; the lower interest rates meant that fewers firms were put into bankruptcy, and so the magnitude of publicly funded corporate and financial bailout was smaller. The lower interest rates meant too that recovery could occur with less reliance on fiscal policy, and consequently less government borrowing. Today, Malaysia stands in a far better position than those countries that took IMF advice.
pp.217-218
It is no accident that the two large developing countries spared the ravages of the global economic crisis ── India and China ── both had capital controls.
p.218
China achieved this by following the prescriptions of economic orthodoxy. These were not the Hooverite IMF prescriptions, but the standard prescriptions that economists have been teaching for more than half a century: When face with an economic downturn, respond with expansionary macroeconomic policy.
Joseph E. Stiglitz, Globalization and its discontents revisited, 2018, 2002
____________________________________
July 2, 1997
en.wikipedia.org
1997 Asian financial crisis
https://en.wikipedia.org/wiki/1997_Asian_financial_crisis
, though these economists maintain the main cause of their crises was excessive real estate speculation.[13]
The resulting large quantities of credit that became available generated a highly leveraged economic climate, and pushed up asset prices to an unsustainable level, particularly those in non-productive sectors of the economy such as real-estate.[15]
At the 30th ASEAN Ministerial Meeting held in Subang Jaya, Malaysia, the foreign ministers issued a joint declaration on 25 July 1997 expressing serious concern and called for further intensification of ASEAN's cooperation to safeguard and promote ASEAN's interest in this regard.[27] Coincidentally, on that same day, the central bankers of most of the affected countries were at the EMEAP (Executive Meeting of East Asia Pacific) meeting in Shanghai, and they failed to make the "New Arrangement to Borrow" operational. A year earlier, the finance ministers of these same countries had attended the 3rd APEC finance ministers meeting in Kyoto, Japan, on 17 March 1996, and according to that joint declaration, they had been unable to double the amounts available under the "General Agreement to Borrow" and the "Emergency Finance Mechanism".
The dynamics of the situation were similar to that of the Latin American debt crisis.
Critics, however, noted the contractionary nature of these policies, arguing that in a recession, the traditional Keynesian response was to increase government spending, prop up major companies, and lower interest rates.
____________________________________
1630
1636
•── The Dutch Tulip Bulb Bubble 1636 *$$
── big financial bubble
── https://en.wikipedia.org/wiki/Tulip_mania
1640
1650
1660
1670
1680
1690
1700
1710
1720
•── The South Sea Bubble 1720 *$$
── big financial bubble
── https://en.wikipedia.org/wiki/South_Sea_Company
•── The Mississippi Bubble 1720 *$$
── big financial bubble
── https://en.wikipedia.org/wiki/Mississippi_Company#Mississippi_Bubble
1730
1740
1750
1760
1770
1780
1790
1800
1810
1820
1830
1840
1850
1860
1870
1880
•── Berlin, and German investors had been caught up in international railroad speculation mania in the 1880s., p.14, William Engdahl, A century of war: Anglo-American oil politics and the new world order, 1992, 2004.
1890
•── huge losses in Argentine bond speculation and investment
── near failure of the prestigious London merchant bank, Baring Brothers
── ties of German banking to this Argentine speculation
── a Berlin bank panic ensured
── the dominoes of an international financial pyramid began to topple.
── the crash of the elite Baring Bros., with some $75,000,000 invested in various Argentine bonds
── p.14, William Engdahl, A century of war: Anglo-American oil politics and the new world order, 1992, 2004.
1891
•── In the wake of the financial collapse of Argentina, a large wheat exporter to Europe, Berlin grain traders Ritter & Blumenthal had foolishly attempted to ‘corner’ on the entire German wheat market, planning to capitalize on the consequences of the financial troubles in Argentina. This only aggravated the financial panic in Germany as their scheme collapsed, bankrupting in its wake the esteemed private banking house of Hirschfeld & Wolf, and causing huge losses at the Rheinisch-Westphaelische Bank, further triggering a general run on German banks and a collapse of the Berlin stock market, lasting into the autumn of 1891.
── pp.14-15, William Engdahl, A century of war: Anglo-American oil politics and the new world order, 1992, 2004.
1896
•── German exchange act of 1896 (germany)
── established definitively a different form of organization of finance and banking in Germany from that of Britain or America──Anglo-Saxon banking.
── Not only this, but many London financial houses reduced their activity in the restrictive German financial market after the 1890s as a result of these restrictions, lessening the influence of City of London finance over German economic policy.
── Significantly, to the present day, these fundamental differences between Anglo-Saxon banking and finance, and a ‘German model’ as largely practiced in Germany, Holland, Switzerland and Japan, are still somewhat visible.3
── p.15, William Engdahl, A century of war: Anglo-American oil politics and the new world order, 1992, 2004.
──
1914-1918 the Great war (later renamed to World war I)
── In fact, America prospered because of the war. American farmers sold wheat, cotton, and other crops to both the Allies and the Central Powers. American factories sold guns, ammunition, and other war supplies to both sides., p.45, Zachary Kent, World War I : the war to end wars, 1994. (World War I : the war to end wars / Zachary Kent., 1. world war, 1914-1918--juvenile literature., [1. world war, 1914-1918.], D521.K35 1994, 940.3--dc20, 1994, )
1900
1910
1920
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