The Long Financial Crisis (updated)


It’s commonplace to describe the financial crisis as a once-in-a-century event, but I question whether that is the case. Perhaps we’re not in the midst of a short-lived financial shock, but a long crisis that stretches back into the 1990s.

Here’s Paul Blustein on Alan Greenspan:

The Fed chief told the G-7 that in almost fifty years of watching the U.S. economy, he had never witnessed anything like the drying up of markets in the previous days and weeks.

Greenspan wasn’t speaking in Autumn 2008 when Lehman’s collapsed, however, but ten years’ earlier in the wake of the spectacular blow-up of Long-Term Capital Management, which lost $4.5 billion almost overnight in what the fund’s principals post-rationalised as a 100-year flood.

Long-Term (with its superbly hubristic name) was brought low by derivatives, just as Lehman’s would be a decade later.

(Robert Rubin, Clinton’s Treasury Secretary, was one of those left picking up the pieces – part of ‘the committee to save the world’, with Greenspan and Larry Summers. Rubin went on to preside over Citigroup as it needed a succession of massively expensive bailouts, when its derivatives tanked in the subprime crisis.)

Committee to Save the World

The proximate cause of Long-Term’s failure was Russia’s Rouble crisis, when the country defaulted on its debt after the IMF refused to mount a second bailout.

The Russian crisis itself came in the midst of a long series of dramatic economic failures that hits the world between 1997 and 1999, mostly in East Asia (Thailand, South Korea, Indonesia etc), but which also battered Brazil and would devastate Argentina in 2002. Blustein again:

Time and again, panics in financial markets proved impervious to the ministrations of the people responsible for global economic policymaking.

IMF bailouts fell flat in one crisis-stricken country after another, with the announcements of enormous international loan packages followed by crashes in currencies and sever economic setbacks that the rescues were supposed to avert.


Democracy in Thailand – response to comments

This is a response to some thoughtful reactions to my earlier post on democracy in Thailand, and to arguments made in last week’s Economist about the situation there.

My arguments are no vindication of the PAD, whose reckless actions I find condemnable and ultimately counter-productive and whose proposals (including the 70% vote) are misguided. My intention was to provide some background on the current political situation, background that I found lacking in my main news sources. And to challenge the simplistic notion that what we are seeing is a rejection of democracy by rich urban elites who feel threatened by a democratic government that cares for and represents the poor. There are many valid reasons why ordinary citizens from all walks of life united against an elected government: their primary motive was not to defeat democracy, rather to fight its abuses.

The portrayal of the current political crisis as a battle of rich urban elites versus a majority of poor rural folk united behind the popular Mr. Thaksin is inaccurate and unhelpful. Poor farmers in the north like Mr. Thaksin. Poor city-folk in Bangkok don’t. Poor Muslims in the south hate him. While Mr. Thaksin’s party gained the most seats in parliament, more people voted against him than voted for him. He doesn’t have the kind of broad-based popular mandate that many commentators credit him with.

Conversely the PAD are not a homogenous group. As last week’s Economist put it: “the PAD is a motley bunch, united only in its fanatical hatred of Mr. Thaksin”. It is Mr. Thaksin’s abuses of power that they are outraged about, not his policies to help the poor. People did not take to the streets in protest when Mr. Thaksin first announced and implemented his “populist” policies. Neither were there street protests when his crack-down on drugs led to extrajudicial killings of hundreds (thousands?) of supposed drug traffickers many in dubious circumstances. Neither did they take to the streets when he botched up the relative peace in the south. Thais have a high tolerance for politicians’ professional shortcomings.

But what many Thais could not stomach was Mr. Thaksin’s reckless bending of the system to suit his own personal needs. The straw that broke the camel’s back was when Thaksin used some cunning structures to avoid paying tax on the sale of Shin Corp to Temasek. He also had changed a law to aid in this sale. That was what brought people into the streets in protest, and led to the formation of the PAD.


Democracy in Thailand

With my wedding in Bangkok fast approaching, I have been watching the events unfolding there closely and with trepidation. I am dismayed at the blinkered and naïve reporting and commentary in the mainstream Western press about the situation in Thailand (I refer in particular to The FT, The Economist, The Washington Post etc). The political impasse is described in clichés, as a battle of virtuous rural masses versus power-possessive urban elites, of progressives and democrats versus royalists, militarists and other hideous elements of the ‘ancien regime’. I’ve no doubt that the current events signify a failure of democracy in Thailand. It is indeed that very failure that the protesters are decrying, with resort to ever more desperate tactics.

A recent blog by the FT’s Gideon Rachman – whose pieces I frequently enjoy reading – typifies the mainstream view, which is shallow and simplistic both in its account of the situation and in its interpretation of democracy (see article here). According to Mr. Rachman (who by the way likes clichés):

“The urban middle-classes are rising up and demanding that democracy be rescinded.
Do not be fooled by the fact that the group occupying the airport call themselves the “People’s Alliance for Democracy“. Their intent is clearly anti-democratic. They have just brought down an elected government.”

In this vein, the anti-government movement (known as the People’s Alliance for Democracy, or PAD) has been widely condemned on the basis that it unlawfully rejects a government that was voted in through the ballot and thus has prima facie democratic legitimacy. It seems to be a straightforward case of foul play on the part of the urban elites, who directly challenge the people’s choice. Or is it?