An Interview with Walden Bello
Asia’s financial crisis came a decade before the global crisis, but it has had a lasting influence and left a legacy that could sow the seeds for the next global crisis.
How did the Asian financial crisis in 1997-1998 differ to the one that broke in the US and Europe in 2008?
The Asian financial crisis in 1997-98 was similar to the 2008 global financial crisis in that it was also the product of speculative bubbles in real estate and the stock market created by the search for high profits by finance capital. The difference was the role of currency speculators and hedge fund operators in hastening the bursting of the bubble and the collapse of the real economy; these actors played a negligible role in the 2008 crisis. These speculators, led by George Soros’ Quantum Fund, targeted the overvalued currencies of the Asian economies, particularly the Thai baht, betting on the probability that they would be devalued relative to the dollar owing to investor fears that the bubbles would burst, thus accelerating the devaluation of the currencies and making tremendous profits once the Asian currencies were devalued. Had the speculators not been active, the bubbles would still have burst and the real economy would still have entered into severe crisis, but the “landing” would have probably been less rough.
Where the uniqueness of the 2008-2009 crisis lay was in the fatal marriage of a real estate bubble with financial engineering. Tremendous amounts of cash flowed into real estate that were plowed into loans, a great many of them of dubious quality because the debtors’ capacity to repay the loans was questionable– thus the term subprime loans. Financial engineering allowed mortgage originators to slice, dice, and package these loans into securities that were then sold to banks and other financial institutions, which then resold them to other banks and financial institutions. When the mortgage holders could no longer service their mortgages, the quality of the loans was drastically impaired. But billions of dollars of these now toxic securities were circulating in the global financial system, upending the balance sheets of the US and foreign banks and institutions that held them and driving many, like Lehman Brothers, to bankruptcy, and others, like Citi and the German regional banks, requiring a massive government rescue.