《国际投资》课程教学资源（书籍文献）追溯全球金融危机的源起及冲击 Manias, Panics, and Crashes, A History of Financial Crises（Fifth Edition，Charles P. Kindleberger and Robert Z. Aliber）.pdf_大学文库

Foreword Charlie Kindleberger(CPK from now on)was a delightful colleague: perceptive,responsive,curious about everything,full of character,and above all,lively.Those same qualities are everywhere evident in Manias, Panics.and Crashes. I think that CPK began to work on the book in the spirit of writ ing a natural history,rather as Darwin must have done at the stage of the Beagle-collecting,examining and classifying interesting specimens. Manias,panics,and crashes had the advantage over rodents,birds,and beetles that they were accompanied by the rhetoric of contemporaries, sometimes with insight,sometimes just blather.It was CPK's style as an economic historian to hunt for interesting things to learn,not to pursue a systematic agenda. of course,he was an economist by training and experience,and he soon found patterns and regularities,and causes and effects.What caught his eye especially were the irrationalities that seemed so often to enmesh those directly or indirectly enmeshed in the events themselves. By itself that would have been merely entertaining.The story got in- teresting for CPK with the interaction of behavior and institutions.The occurrence of manias,panics,and crashes,and their ultimate scope,also depended very much on the monetary and capital-market institutions of the time. CPK could not have known at the start just how hardy a perennial financial crisis would turn out to be.The quarter-century after the pub- lication of the first edition featured a whole new level of turbulence in national banking systems,exchange-rate volatility and asset-price bub- bles.There was always new material to be digested in successive editions This history cannot have been merely the result of increasing human ir- rationality,though CPK would have been charmed by what a German friend of ours called 'Das Gesetz der Verschlechtigung aller Dinge'(the Law of the Deterioration of Everything).Increasing wealth,faster and cheaper communication,and the evolution of national and interna tional financial systems also played an indispensable role,as sketched in Chapter 13,added to this edition by Robert Aliber.CPK's effort at economic history found a subject that does not appear to be going out of style

FM JWBK120/Kindleberger February 13, 2008 14:53 Char Count= Foreword Charlie Kindleberger (CPK from now on) was a delightful colleague: perceptive, responsive, curious about everything, full of character, and, above all, lively. Those same qualities are everywhere evident in Manias, Panics, and Crashes. I think that CPK began to work on the book in the spirit of writing a natural history, rather as Darwin must have done at the stage of the Beagle—collecting, examining and classifying interesting specimens. Manias, panics, and crashes had the advantage over rodents, birds, and beetles that they were accompanied by the rhetoric of contemporaries, sometimes with insight, sometimes just blather. It was CPK’s style as an economic historian to hunt for interesting things to learn, not to pursue a systematic agenda. Of course, he was an economist by training and experience, and he soon found patterns and regularities, and causes and effects. What caught his eye especially were the irrationalities that seemed so often to enmesh those directly or indirectly enmeshed in the events themselves. By itself that would have been merely entertaining. The story got interesting for CPK with the interaction of behavior and institutions. The occurrence of manias, panics, and crashes, and their ultimate scope, also depended very much on the monetary and capital-market institutions of the time. CPK could not have known at the start just how hardy a perennial financial crisis would turn out to be. The quarter-century after the publication of the first edition featured a whole new level of turbulence in national banking systems, exchange-rate volatility and asset-price bubbles. There was always new material to be digested in successive editions. This history cannot have been merely the result of increasing human irrationality, though CPK would have been charmed by what a German friend of ours called ‘Das Gesetz der Verschlechtigung aller Dinge’ (the Law of the Deterioration of Everything). Increasing wealth, faster and cheaper communication, and the evolution of national and international financial systems also played an indispensable role, as sketched in Chapter 13, added to this edition by Robert Aliber. CPK’s effort at economic history found a subject that does not appear to be going out of style. vii

vii Foreword The shape of a new financial architecture'and the possible utility of a lender of last resort-national and/or internationalalong with th guidelines that ought to govern it were also among CPK's preoccupa- tions.Those who are engaged in reforming (or at least changing)the system would do well to ponder the lessons that emerge from this book. One of those lessons is very general,and is most applicable in contexts where irrationality may trump sober calculation.CPK was a skeptic by nature,just the opposite of doctrinaire.He mistrusted iron-clad intel- lectual systems,whether their proponents were free marketeers or social engineers.In fact,he considered clinging to rigid beliefs in the face of disconcerting evidence to be one of the more dangerous forms of irra- tionality,especially when it is practiced by those in charge.The interna tional economy would be a safer place if CPK's tolerant skepticism were more common among the powers that be.I am thinking,in particular, about current discussions of the so-called 'Washington consensus,'and the pros and cons of both freely floating exchange rates and unfettered capital markets. Any reader of this book will come away with the distinct notion that large quantities of liquid capital sloshing around the world should raise the possibility that they will overflow the container.One issue omitted in the book-because it is well outside its scope-is the other side of the ledger:What are the social benefits of free capital flow in its various forms,the analogue of gains from trade?CPK,whose specialties as an economist included international trade,international finance and eco- nomic development,would have been sensitive to the need for some pragmatic balancing of risks and benefits.One can only hope that the continued,up-to-date availability of this book will help to spread his open-minded habit of thought. It seems to me that the Aliber version preserves this basic Kindleberger orientation but imposes a little more order on CPK's occasionally way- ward path through his specimen cabinets.More manias,panics,and crashes may plague us,but readers of this book will at least have been inoculated. ROBERT M.SOLOW

FM JWBK120/Kindleberger February 13, 2008 14:53 Char Count= viii Foreword The shape of a ‘new financial architecture’ and the possible utility of a lender of last resort—national and/or international—along with the guidelines that ought to govern it were also among CPK’s preoccupations. Those who are engaged in reforming (or at least changing) the system would do well to ponder the lessons that emerge from this book. One of those lessons is very general, and is most applicable in contexts where irrationality may trump sober calculation. CPK was a skeptic by nature, just the opposite of doctrinaire. He mistrusted iron-clad intellectual systems, whether their proponents were free marketeers or social engineers. In fact, he considered clinging to rigid beliefs in the face of disconcerting evidence to be one of the more dangerous forms of irrationality, especially when it is practiced by those in charge. The international economy would be a safer place if CPK’s tolerant skepticism were more common among the powers that be. I am thinking, in particular, about current discussions of the so-called ‘Washington consensus,’ and the pros and cons of both freely floating exchange rates and unfettered capital markets. Any reader of this book will come away with the distinct notion that large quantities of liquid capital sloshing around the world should raise the possibility that they will overflow the container. One issue omitted in the book—because it is well outside its scope—is the other side of the ledger: What are the social benefits of free capital flow in its various forms, the analogue of gains from trade? CPK, whose specialties as an economist included international trade, international finance and economic development, would have been sensitive to the need for some pragmatic balancing of risks and benefits. One can only hope that the continued, up-to-date availability of this book will help to spread his open-minded habit of thought. It seems to me that the Aliber version preserves this basic Kindleberger orientation but imposes a little more order on CPK’s occasionally wayward path through his specimen cabinets. More manias, panics, and crashes may plague us, but readers of this book will at least have been inoculated. ROBERT M. SOLOW

2 Manias,Panics,and Crashes higher inflation rate in the United States than in Germany and in Japan in the previous few years.In 1971 the United States abandoned the U.S. gold parity of S35 an ounce that had been established in 1934;in the next several years there were two modest increases in the U.S.gold parity although the U.S.Treasury would no longer buy and sell gold.The effor to retain a modified version of the Bretton Woods system of pegged exchange rates that was formalized in the Smithsonian Agreement of 1972 failed and there was a move to floating exchange rates early in 1973;in the 1970s the U.S.dollar lost more than half of its value relative to the German mark and the Japanese yen.The U.S.dollar appreciated significantly in the first half of the 1980s,although not to the levels of the early 1970s.A massive foreign exchange crisis involved the Mexican peso,the Brazilian cruzeiro,the Argentinean peso,and the currencies of many of the other developing countries in the early 1980s.The Finnish markka,the Swedish krona,the British pound,the Italian lira,and the Spanish peseta were devalued in the last six months of 1992:most of these currencies depreciated by 30 percent relative to the German mark. The Mexican peso lost more than half of its value in terms of the U.S. dollar during the presidential transition in Mexico at the end of 1994 and the beginning of 1995.Most of the Asian currencies-the Thai baht, the Malaysian ringgit,the Indonesian rupiah,and the South Korean won-depreciated sharply in the foreign exchange market during the Asian Financial Crisis in the summer and autumn of 1997. The changes in the market exchange rates for these individual cur- rencies were almost always much larger than those that would have been inferred from the differences between national inflation rates in particular countries.The scope of'overshooting'and 'undershooting'of national currencies was both more extensive and much larger than in any previous period. Some of the changes in commodity prices in the period were spectac- ular.The U.S.dollar price of gold increased from $40 an ounce at the beginning of the 1970s to nearly $1,000 an ounce at the end of that decade;at the end of the 1980s the price was $450,and at the end of the 1990s it was $283.The price of oil was $2.50 a barrel at the beginning of the 1970s and $40 a barrel at the end of that decade;in the mid-1980s the oil price was $12 a barrel and then at the end of the 1980s the price was back at $40 after the Iraqi invasion of Kuwait. The number of bank failures during the 1980s and the 1990s was much,much larger than in any earlier decades.Several of these failures were isolated national events:Franklin National Bank in New York City

c01 JWBK120/Kindleberger February 13, 2008 14:58 Char Count= 2 Manias, Panics, and Crashes higher inflation rate in the United States than in Germany and in Japan in the previous few years. In 1971 the United States abandoned the U.S. gold parity of $35 an ounce that had been established in 1934; in the next several years there were two modest increases in the U.S. gold parity although the U.S. Treasury would no longer buy and sell gold. The effort to retain a modified version of the Bretton Woods system of pegged exchange rates that was formalized in the Smithsonian Agreement of 1972 failed and there was a move to floating exchange rates early in 1973; in the 1970s the U.S. dollar lost more than half of its value relative to the German mark and the Japanese yen. The U.S. dollar appreciated significantly in the first half of the 1980s, although not to the levels of the early 1970s. A massive foreign exchange crisis involved the Mexican peso, the Brazilian cruzeiro, the Argentinean peso, and the currencies of many of the other developing countries in the early 1980s. The Finnish markka, the Swedish krona, the British pound, the Italian lira, and the Spanish peseta were devalued in the last six months of 1992; most of these currencies depreciated by 30 percent relative to the German mark. The Mexican peso lost more than half of its value in terms of the U.S. dollar during the presidential transition in Mexico at the end of 1994 and the beginning of 1995. Most of the Asian currencies—the Thai baht, the Malaysian ringgit, the Indonesian rupiah, and the South Korean won—depreciated sharply in the foreign exchange market during the Asian Financial Crisis in the summer and autumn of 1997. The changes in the market exchange rates for these individual currencies were almost always much larger than those that would have been inferred from the differences between national inflation rates in particular countries. The scope of ‘overshooting’ and ‘undershooting’ of national currencies was both more extensive and much larger than in any previous period. Some of the changes in commodity prices in the period were spectacular. The U.S. dollar price of gold increased from $40 an ounce at the beginning of the 1970s to nearly $1,000 an ounce at the end of that decade; at the end of the 1980s the price was $450, and at the end of the 1990s it was $283. The price of oil was $2.50 a barrel at the beginning of the 1970s and $40 a barrel at the end of that decade; in the mid-1980s the oil price was $12 a barrel and then at the end of the 1980s the price was back at $40 after the Iraqi invasion of Kuwait. The number of bank failures during the 1980s and the 1990s was much, much larger than in any earlier decades. Several of these failures were isolated national events: Franklin National Bank in New York City

Financial Crisis:A Hardy Perennial 3 and Herstatt AG in Cologne,Germany,made large bets on the changes in currency values in the early 1970s and both banks lost the bets and were forced to close because of the large losses.Credit Lyonnais,once the largest bank in France and a government-owned firm,made an ex- ceptionally large number of loans associated with the effort to rapidly increase its size and its bad loans eventually cost the French taxpayers more than $30 billion.Three thousand U.S.savings and loan associations and other thrift institutions failed in the 1980s,with losses to the Amer ican taxpayers of more than $100 billion.The collapse of the U.S.junk bond market in the early 1990s led to losses of more than $100 billion. Most of the bank failures in the 1980s and the 1990s were systemic and involved all or most of the banks and financial institutions in a country. When the bubbles in Japanese real estate and stocks imploded,the losses incurred by the Japanese banks were many times their capital and virtu- ally all the Japanese banks became wards of their governments.Similarly when the Mexican currency and the currencies of the other developing countries depreciated sharply in the early 1980s.most of the banks in this group of countries failed because of the combination of their large loan losses and the currency revaluation losses of their domestic bor. rowers.Virtually all of the banks in Finland,Norway,and Sweden went bankrupt when the bubbles in their real estate and stock markets im ploded at the beginning of the 1990s.(Many of the government-owned banks in these various countries incurred comparably large loan losses and would have failed if they were not already in the public sector. Virtually all of the Mexican banks failed at the end of 1994 when the peso depreciated sharply.Most of the banks in Thailand and Malaysia and South Korea and several of the other Asian countries went bankrupt after the mid-1997 Asian Financial Crisis(the banks in Hong Kong and Singapore were an exception). These financial crises and bank failures resulted from the implosion of the asset price bubbles or from the sharp depreciations of national currencies in the foreign exchange market;in some cases the foreign exchange crises triggered bank crises and in others the bank crises led to foreign exchange crises.The cost of these bank crises was extremely high in terms of several metrics-the losses incurred by the banks in each country as a ratio of the country's GDP or as a share of government spending,and the slowdowns in the rates of economic growth.The losses incurred by the banks headquartered in Tokyo and Osaka-eventually a burden on the country's taxpayer -were more than 25 percent of Japan's GDP.The losses incurred by the Argentinean banks were

c01 JWBK120/Kindleberger February 13, 2008 14:58 Char Count= Financial Crisis: A Hardy Perennial 3 and Herstatt AG in Cologne, Germany, made large bets on the changes in currency values in the early 1970s and both banks lost the bets and were forced to close because of the large losses. Credit Lyonnais, once ´ the largest bank in France and a government-owned firm, made an exceptionally large number of loans associated with the effort to rapidly increase its size and its bad loans eventually cost the French taxpayers more than $30 billion. Three thousand U.S. savings and loan associations and other thrift institutions failed in the 1980s, with losses to the American taxpayers of more than $100 billion. The collapse of the U.S. junk bond market in the early 1990s led to losses of more than $100 billion. Most of the bank failures in the 1980s and the 1990s were systemic and involved all or most of the banks and financial institutions in a country. When the bubbles in Japanese real estate and stocks imploded, the losses incurred by the Japanese banks were many times their capital and virtually all the Japanese banks became wards of their governments. Similarly when the Mexican currency and the currencies of the other developing countries depreciated sharply in the early 1980s, most of the banks in this group of countries failed because of the combination of their large loan losses and the currency revaluation losses of their domestic borrowers. Virtually all of the banks in Finland, Norway, and Sweden went bankrupt when the bubbles in their real estate and stock markets imploded at the beginning of the 1990s. (Many of the government-owned banks in these various countries incurred comparably large loan losses and would have failed if they were not already in the public sector.) Virtually all of the Mexican banks failed at the end of 1994 when the peso depreciated sharply. Most of the banks in Thailand and Malaysia and South Korea and several of the other Asian countries went bankrupt after the mid-1997 Asian Financial Crisis (the banks in Hong Kong and Singapore were an exception). These financial crises and bank failures resulted from the implosion of the asset price bubbles or from the sharp depreciations of national currencies in the foreign exchange market; in some cases the foreign exchange crises triggered bank crises and in others the bank crises led to foreign exchange crises. The cost of these bank crises was extremely high in terms of several metrics—the losses incurred by the banks in each country as a ratio of the country’s GDP or as a share of government spending, and the slowdowns in the rates of economic growth. The losses incurred by the banks headquartered in Tokyo and Osaka—eventually a burden on the country’s taxpayers—were more than 25 percent of Japan’s GDP. The losses incurred by the Argentinean banks were

4 Manias,Panics,and Crashes 50 percent of its GDP-a lot of money in yen and pesos and U.S.dollars, and a much larger share of GDP than the losses incurred by U.S.banks in the Great Depression of the 1930s These bank failures occurred in three different waves:the first at the beginning of the 1980s,the second at the beginning of the 1990s and the third in the second half of the 1990s.The bank failures,the large changes in exchange rates and the asset price bubbles were systemat- ically related and resulted from rapid changes in the economic envi- ronment.The 1970s was a decade of accelerating inflation,the largest sustained increase in the U.S.consumer price level in peacetime.The market price of gold surged initially because some investors relied on the cliche that 'gold is a good inflation hedge'as the basis for their price forecasts;however the increase in the gold price was many times larger than the contemporary increase in the U.S.price level.Toward the end of the 1970s investors were buying gold because the price of gold was increasing-and the price was increasing because investors were buying gold.The Hunt brothers from Texas tried to corner the silver market and the price of this precious metalin the 1970s increased even more rapidly than the price of gold. The prevailing view in the late 1970s was that U.S.and world inflation rates would accelerate.Some analysts predicted that the gold price would increase to $2,500 an ounce;the forecasters in the oil industry and in the banks that were large lenders to firms in the oil industry predicted that the oil price would reach $80 to $90 a barrel by 1990.One of the cliches at the time was that the price of an ounce of gold was more or less the same as the price of twenty barrels of oil The range of movement in bond prices and stock prices in the 1970s was much greater than in the several previous decades.In the 1970s the real rates of return on both U.S.dollar bonds and U.S.stocks were negative.In contrast in the 1990s the real rates of return on bonds and on stocks averaged more than 15 percent a year The foreign indebtedness of Mexico,Brazil.Argentina.and other de- veloping countries as a group increased from $125 billion in 1972 to s800 billion in 1982.The major international banks headquartered in New York and Chicago and Los Angeles and London and Tokyo increased their loans to governments and government-owned firms in these coun- tries at an average annual rate of 30 percent a year for ten years.The cliche at the time was that governments didn't go bankrupt.During this period the borrowers had a stellar record for paying the interest on their loans on a timely basis-but then they obtained all the cash needed to pay the interest on these loans from the lenders in the form of new loans

c01 JWBK120/Kindleberger February 13, 2008 14:58 Char Count= 4 Manias, Panics, and Crashes 50 percent of its GDP—a lot of money in yen and pesos and U.S. dollars, and a much larger share of GDP than the losses incurred by U.S. banks in the Great Depression of the 1930s. These bank failures occurred in three different waves: the first at the beginning of the 1980s, the second at the beginning of the 1990s and the third in the second half of the 1990s. The bank failures, the large changes in exchange rates and the asset price bubbles were systematically related and resulted from rapid changes in the economic environment. The 1970s was a decade of accelerating inflation, the largest sustained increase in the U.S. consumer price level in peacetime. The market price of gold surged initially because some investors relied on the cliche that ‘gold is a good inflation hedge’ as the basis for their price ´ forecasts; however the increase in the gold price was many times larger than the contemporary increase in the U.S. price level. Toward the end of the 1970s investors were buying gold because the price of gold was increasing—and the price was increasing because investors were buying gold. The Hunt brothers from Texas tried to corner the silver market and the price of this precious metal in the 1970s increased even more rapidly than the price of gold. The prevailing view in the late 1970s was that U.S. and world inflation rates would accelerate. Some analysts predicted that the gold price would increase to $2,500 an ounce; the forecasters in the oil industry and in the banks that were large lenders to firms in the oil industry predicted that the oil price would reach $80 to $90 a barrel by 1990. One of the cliches at the time was that the price of an ounce of gold was more or ´ less the same as the price of twenty barrels of oil. The range of movement in bond prices and stock prices in the 1970s was much greater than in the several previous decades. In the 1970s the real rates of return on both U.S. dollar bonds and U.S. stocks were negative. In contrast in the 1990s the real rates of return on bonds and on stocks averaged more than 15 percent a year. The foreign indebtedness of Mexico, Brazil, Argentina, and other developing countries as a group increased from $125 billion in 1972 to $800 billion in 1982. The major international banks headquartered in New York and Chicago and Los Angeles and London and Tokyo increased their loans to governments and government-owned firms in these countries at an average annual rate of 30 percent a year for ten years. The cliche at the time was that governments didn’t go bankrupt. During this ´ period the borrowers had a stellar record for paying the interest on their loans on a timely basis—but then they obtained all the cash needed to pay the interest on these loans from the lenders in the form of new loans

Financial Crisis:A Hardy Perennial 5 In the autumn of 1979 the Federal Reserve adopted a sharply contrac- tive monetary policy;interest rates on U.S.dollar securities surged.The price of gold peaked in January 1980 as inflationary anticipations were reversed.A severe world recession followed. In 1982 the Mexican peso,the Brazilian cruzeiro,the Argentinean peso.and the currencies of the other developing countries depreciated sharply,share prices in these countries tumbled,and most of the banks in these countries failed as a result of the large loan losses The sharp increase in real estate prices and stock prices in Japan in the 1980s was associated with a boom in the economy;Japan as Number One:Lessons for Americal was a bestseller in the country.The banks head quartered in Tokvo and Osaka increased their deposits and their loans and their capital much more rapidly than banks headquartered in the United States and in Germany and in the other European countries:usu ally seven or eight of the ten largest banks in the world were Japanese Then at the beginning of the 1990s real estate prices and stock prices in Japan imploded.Within a few years many of the leading Japanese banks and financial institutions were broke,kaput,bankrupt, and insolvent and remained in business only because of an implicit understanding that the Japanese government would protect the depositors from finan- cial losses if the banks were closed.A striking story of a mania and a crash-but a crash without a panic,apparently because of the belief that government would socialize the loan losses Three of the Nordic countries-Norway,Sweden,and Finland-repli cated the Japanese asset price bubble at the same time.A boom in real estate prices and stock prices in the second half of the 1980s associated with financial liberalization was followed by a collapse in real estate prices and stock prices and the failure of the banks. Mexico had been one of the great economic success stories of the early 1990s as it prepared to enter the North American Free Trade Agreement. The Bank of Mexico had adopted a tough contractive monetary policy that reduced the inflation rate from 140 percent to less than 10 percent in a four-vear period:during the same period several hundred government- owned firms were privatized and business regulations were liberalized Foreign capital flowed to Mexico because the real rates of return on government securities were high and because the prospective profit rates on industrial investments were also high.The universal expectation was that Mexico would become the low-wage,low-cost base for producing automobiles and washing machines and many other manufactured goods for the U.S.and Canadian markets.Because the large inflow of foreign savings led to a real appreciation of the peso,Mexico developed

c01 JWBK120/Kindleberger February 13, 2008 14:58 Char Count= Financial Crisis: A Hardy Perennial 5 In the autumn of 1979 the Federal Reserve adopted a sharply contractive monetary policy; interest rates on U.S. dollar securities surged. The price of gold peaked in January 1980 as inflationary anticipations were reversed. A severe world recession followed. In 1982 the Mexican peso, the Brazilian cruzeiro, the Argentinean peso, and the currencies of the other developing countries depreciated sharply, share prices in these countries tumbled, and most of the banks in these countries failed as a result of the large loan losses. The sharp increase in real estate prices and stock prices in Japan in the 1980s was associated with a boom in the economy; Japan as Number One: Lessons for America1 was a bestseller in the country. The banks headquartered in Tokyo and Osaka increased their deposits and their loans and their capital much more rapidly than banks headquartered in the United States and in Germany and in the other European countries; usually seven or eight of the ten largest banks in the world were Japanese. Then at the beginning of the 1990s real estate prices and stock prices in Japan imploded. Within a few years many of the leading Japanese banks and financial institutions were broke, kaput, bankrupt, and insolvent, and remained in business only because of an implicit understanding that the Japanese government would protect the depositors from financial losses if the banks were closed. A striking story of a mania and a crash—but a crash without a panic, apparently because of the belief that government would socialize the loan losses. Three of the Nordic countries—Norway, Sweden, and Finland—replicated the Japanese asset price bubble at the same time. A boom in real estate prices and stock prices in the second half of the 1980s associated with financial liberalization was followed by a collapse in real estate prices and stock prices and the failure of the banks. Mexico had been one of the great economic success stories of the early 1990s as it prepared to enter the North American Free Trade Agreement. The Bank of Mexico had adopted a tough contractive monetary policy that reduced the inflation rate from 140 percent to less than 10 percent in a four-year period; during the same period several hundred governmentowned firms were privatized and business regulations were liberalized. Foreign capital flowed to Mexico because the real rates of return on government securities were high and because the prospective profit rates on industrial investments were also high. The universal expectation was that Mexico would become the low-wage, low-cost base for producing automobiles and washing machines and many other manufactured goods for the U.S. and Canadian markets. Because the large inflow of foreign savings led to a real appreciation of the peso, Mexico developed

6 Manias,Panics,and Crashes a trade deficit that reached 7 percent of its GDP.Mexico's external debt was 60 percent of its GDP and the country obtained the money to pay the interest on its increasing foreign indebtedness from the inflow of new investments.Then several political incidents,partly associated with the presidential election and transition in 1994,led to a sharp decline in the inflow of foreign funds,the Mexican government was unable to continue to support the peso in the foreign exchange market,and the currency lost more than half of its value in several months.Once again the depre- ciation of the peso resulted in large loan losses,and the Mexican banks- which had been privatized in the previous several years-failed. In the mid-1990s real estate prices and stock prices surged in Bangkok, Kuala Lumpur,and Indonesia;these were the 'dragon economies'that seemed likely to emulate the economic successes of the'Asian tigers' of the previous generation-Taiwan,South Korea,Hong Kong,and Sin- gapore.Japanese firms and European and U.S.firms began to invest in these countries as low-wage,low-cost sources of supply,much as U.S. firms had invested in mexico as a source of supply for the north ameri- can market.European and Japanese banks rapidly increased their loans in these countries.The domestic lenders in Thailand then experienced large loan losses on their domestic credits in the autumn and winter of 1996 because they had not been sufficiently discriminating in their evaluations of the willingness of Thai borrowers to pay the interest on their indebtedness.Foreign lenders sharply reduced their purchases of Thai securities,and then the Bank of Thailand,much like the Bank of Mexico thirty months earlier,did not have the foreign exchange reserves to support its currency in the foreign exchange market.The sharp de cline in the foreign exchange value of the Thai baht in early July 1997 led to capital outflows from the other Asian countries and the foreign exchange values of their currencies (except for the Hong Kong dollar and the Chinese yuen,which remained rigidly pegged to the U.S.dollar) declined by 30 percent or more.The Indonesian rupiah lost 80 percent of its value in the foreign exchange market.Most of the banks in the area-except for those in Hong Kong and Singapore-would have been bankrupt in any reasonable'mark-to-market'test.The crises spread from Asia to Russia,there was a debacle in the ruble,and the country's banking system collapsed in the summer of 1998.Investors then became more cautious and they sold risky securities and bought safer U.S.government securities,with the result that the changes in the relationship between the interest rates on these two groups of securities caused the collapse of Long-Term Capital Management,then the largest U.S.hedge fund

c01 JWBK120/Kindleberger February 13, 2008 14:58 Char Count= 6 Manias, Panics, and Crashes a trade deficit that reached 7 percent of its GDP. Mexico’s external debt was 60 percent of its GDP and the country obtained the money to pay the interest on its increasing foreign indebtedness from the inflow of new investments. Then several political incidents, partly associated with the presidential election and transition in 1994, led to a sharp decline in the inflow of foreign funds, the Mexican government was unable to continue to support the peso in the foreign exchange market, and the currency lost more than half of its value in several months. Once again the depreciation of the peso resulted in large loan losses, and the Mexican banks — which had been privatized in the previous several years—failed. In the mid-1990s real estate prices and stock prices surged in Bangkok, Kuala Lumpur, and Indonesia; these were the ‘dragon economies’ that seemed likely to emulate the economic successes of the ‘Asian tigers’ of the previous generation—Taiwan, South Korea, Hong Kong, and Singapore. Japanese firms and European and U.S. firms began to invest in these countries as low-wage, low-cost sources of supply, much as U.S. firms had invested in Mexico as a source of supply for the North American market. European and Japanese banks rapidly increased their loans in these countries. The domestic lenders in Thailand then experienced large loan losses on their domestic credits in the autumn and winter of 1996 because they had not been sufficiently discriminating in their evaluations of the willingness of Thai borrowers to pay the interest on their indebtedness. Foreign lenders sharply reduced their purchases of Thai securities, and then the Bank of Thailand, much like the Bank of Mexico thirty months earlier, did not have the foreign exchange reserves to support its currency in the foreign exchange market. The sharp decline in the foreign exchange value of the Thai baht in early July 1997 led to capital outflows from the other Asian countries and the foreign exchange values of their currencies (except for the Hong Kong dollar and the Chinese yuen, which remained rigidly pegged to the U.S. dollar) declined by 30 percent or more. The Indonesian rupiah lost 80 percent of its value in the foreign exchange market. Most of the banks in the area—except for those in Hong Kong and Singapore—would have been bankrupt in any reasonable ‘mark-to-market’ test. The crises spread from Asia to Russia, there was a debacle in the ruble, and the country’s banking system collapsed in the summer of 1998. Investors then became more cautious and they sold risky securities and bought safer U.S. government securities, with the result that the changes in the relationship between the interest rates on these two groups of securities caused the collapse of Long-Term Capital Management, then the largest U.S. hedge fund