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Mayer, Martin
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Public policy brief // Jerome Levy Economics Institute of Bard College 44
Asia presents a cumulation of apparently rational decisions that produced disastrous results - a textbook illustration of financial instability developing from the economics of euphoria. A combination of factors produced the crisis as enormous capital inflows were drawn to the Asian miracle-pegged exchange rates with fluctuating interest rates, integrated economies, moral hazard created by central banks, and short-term lending and derivatives trade without sufficient evaluation of risk and credit analysis of borrowers. The Asian tragedy demonstrates the need for improved regulation of cross-border interbank lending, improved accounting for both borrowers and lenders, and separation of the close links between governments and their banking sector.
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Research Report

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