Thread by @SAH16928046

Did the Asian Financial Crisis (1997) had any influence in the 2008 crisis?
@GARP_Risk

No, Not really!

#SOX Compliance came after ENRON and WORLD COM Frauds and Financial Reporting Failures.

You cannot mix the two events.

Asian Financial Crisis came about as a result of Unsound Macroeconomic Policies, disrespect for stabilization, excessive price competition among trading nations, lack of Asset Liability Risk Management done at the Central Banks, monopolistic market structures,

family-controlled businesses, crony capitalism (especially in Indonesia) and tyrant political-economic structures that we're ignoring the fundamentals of welfare economics such as lack of personal freedoms,

the need for correct and rational retributive justice based on normative economic principles and lack of human and worker rights.

Thailand was the first to suffer at the onset of the AFC.
Others followed suit!
The currency crisis contagion had a domino effect on the SE Economies.
The Currencies of Malaysia, Indonesia, Singapore, South Korea, and other regional economies all went into a tailspin!

Credit Crisis or the #GFC which took off between 2007-08 and continued for the next two years, was due to irresponsible credit underwriting, excessive profit-making and speculative risk-taking.
In other words, it was a Moral Hazard Galore!

The banks in the USA and the world over sold their toxic paper to other vulnerable financial institutions.

This leads to a systemic breakdown from New York to Tokyo, and travelling to many other markets which traded the #MBS - #Mortgaged #Back #Securities and other fancy structured products, thereby raising an unnecessarily high exposure of Fis in unhedged high-risk asset classes.

The real drivers were the operational, market, liquidity, and credit risks tied to bank real estate assets portfolio followed up by high-risk asset securitization, credit derivatives, unchecked home loans, imprudent underwriting standards, and excessive off-balance-sheet leverage

Hence, the Asian Financial Crisis was set off by the exchange rate distortions that served as a trigger used by the Hedge Funds.

Whereas the Global Credit Crisis was set off by Credit Underwriting Failures in the American Home Loan Sector which later got securitized as MBS Portfolios, and across other markets such as the Cross - Atlantic Consumer Loans, as seen in the case of Icelandic and British Banks,

and these toxic assets were sold further to other banks/investment companies, hedge funds, and pension funds.
The insurance companies selling hedging instruments offering credit insurance or protection also got embroiled for e.g. the AIG in the USA.

Also, the regulatory mechanisms and the risk management frameworks as adopted by financial institutions such as the @BIS_org drove BASEL II Accord got badly exposed.

Compared to GFC, the Hedge Funds attacked financial systems across SE -Asia back in 1997!
Especially, the Quantum Fund managed by George Soros.
Other Global FIs joined in! It was a buffet for the financial vultures!

But why?

Competitive devaluations and the prospect of currency wars among trading rivals in the region brought about the disaster! The Funds pre-empted such a possibility and sold short assets like stocks on a large scale!

Currency Derivatives wreaked mass havoc across a wide array of financial systems which were weak from within and had no sound footing on which their economic architecture was based!

I remember how Bill Clinton and other G-7 leaders tried their best to develop an International Economic Architecture after the crisis, but they failed miserably.

IMF and BIS - Bank of International Settlements also failed in dealing with the menace of derivatives unto that point in time. There was no critical thinking or analysis at higher levels. No policy direction.

Get rich quick was the motivating force and the theme played across all Asian tiger economies and the other midgets who were following in the same footsteps.

Indonesia suffered so much! Suharto was booted out and Jakarta turned into a pirate-infested island. Poor people were robbing shops and burning cars everywhere. It completely destroyed the many years of industrialization and economic development works,

that lifted a sizable amount of Indonesians out of poverty.
Earlier Sukarno’s Populist cum “Marxist” economic policies had completely mauled the Indonesian Economy.
#Suharto did change things for the better, but it all came crumbling down during the Asian financial crisis!

Tun #Mahathir (former PM of Malaysia) severely criticized Soros and his Quantum Fund.
He imposed a Fixed Peg and Bank Negara of Malaysia placed a ban on short-selling!
#Pegging of the Malaysian #Ringgit to the dollar invited criticism from Krugman and Robert Mundell,

but later they appreciated Tun’s revolutionary leadership and decision-making skills!
#Mahathir emerged as the most successful leader in the post-crisis phase! He outsmarted everybody including the Asian strongman #Lee Kuan Yew.

If I remember correctly?
The #Singaporean banks lost a lot of money because of their overseas dollar exposures.
MAS - Monetary Authority Of Singapore was not able to do much.
They stood and watched events go by!

Late Lee Kuan Yew described the economic events of 1997-99, as an ALM - (Asset Liability Management) Crisis at the Macro-Level.
Mahathir described the whole event as a Zionist conspiracy to weaken SE -Asian Moslem Nations.
Others had other things to say!

S. Korea that signed -off the largest IMF Financing Program, suffered initially!

The South Korean Economy had to implement reforms to re-structure and reshape/right-size the five large firms and other cartels (CHAEBOL), which led to the massive surge in picketing and strikes

in that country and in other parts of SE -Asia, such as Indonesia the Rice and other Industrial/Agrarian/Service Monopolies were dismantled by the IMF.

This lead to a further crisis in the latter nation, as the worker unions and other businesses dependent on the large businesses (owned by crony capitalists) for earnings, were pushed out of work and out of the market.

Complete chaos!

But I guess George #Soros took too much of the blame! He was criticized a lot during the #ERM - Exchange Rate Mechanism Crisis, back in the early 1990s, when the British £Pound collapsed under Norman Lamont (Chancellor of the Exchequer).

Any other person in #Soros position would have done more or less the same thing!

#Thailand was just the tip of the iceberg.

Asian Financial Crisis exposed the Crony Capitalism, dictatorial rule and Market Economic Failure in government guided markets across the SE -Asian Nations, in the most impressive of ways!

futurelearn.com/courses/princi…

market crashes best explained.

@Hanken_fi