This article draws many parallels between the U.S. financial crisis and post-1945 banking crises in the world. But it mainly focuses on how U.S. is doing the opposite of what it advised the Asian economies to do during its 1990 financial crisis.
1. The US Treasury encouraged Asia to tighten its fiscal policy during the 1990's, but has today adopted a fiscal stimulus package.
2. U.S. advocated that the only way to clean up the Asian economy, particularly Japan, was to close or absorb insolvent banks and regenerate the financial system through Schumpeterian “creative destruction.” They strongly opposed the governments’ rescue plans to inject public money into faltering financial institutions to stop the crisis from spreading. It was argued that governments should not intervene in the markets, and that "sick" institutions should be allowed to die according to market principles, because saving them would only encourage moral hazard. Today, U.S. is trying very hard to ensure that none of its major commerical banks and other financial institutions fail.
4. If public money were injected, the governments should let all investors take the loss, and all CEOs of failed companies should be replaced and their compensations be removed (because it does not make sense to reward a CEO for allowing the failure of the financial institution). Yet, there is no specific rule that places a cap on CEO's salaries today in U.S. despite the failure of many financial institutions.
3. For years, foreign governments complained about American hedge funds, arguing that their non-transparent behavior posed unacceptable risks to stability. Now, many US politicians are complaining about the transparency of sovereign wealth funds (big government investors mainly from Asia and the Middle East), which are taking shares in American assets such as Citibank and Merrill Lynch.
So the article concludes by saying that maybe its time for America to listen to the experts from these emerging economies who have already faced and dealt with a similar crisis.
3 comments:
wow..i think thats really amusing. i think it would be nice if America took advice from the emerging economies. During the East Asian crisis, America together with the IMF forced policies upon these countries without taking into consideration whether these policies were good or bad for the countries. And the repercussions for the countries that followed this advice were drastic. Countries that didn't follow the advice from the West emerged quicker and stronger from the crisis. May be there is a message for America...learn from its mistakes and may be consider the success of the emerging countries as an example to follow...yes? no? may be so?
The IMF's call for interest rate cut today is the reverse of its advice for Asian economies during the East Asian crisis. I do think the IMF is influenced by many special interests such as those in Wall Street, and that is partly why it advised EA economies to raise interest rate to attract capital inflow. The result was drastic for these economies.
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