In the second episode of our series on the Asian financial crisis, we talked with Gillian Tett, U.S. managing editor of the Financial Times. Gillian was based in Asia at the time of the crisis and witnessed it spread across the region. In the interview, she relays her experience in Asia in 1997 and how it helped her spot warning signs ahead of the 2008 global financial crisis.
Some of her key takeaways include:
- Contagion caused the crisis to spread across Asia. Investors lumped all of Asia’s problems together, sometimes without clear connection or rationale.
- Japan is not typically considered to be at the center of the Asian financial crisis, but the crisis drew attention to the country’s unresolved banking problems.
- When the Japanese government forced the recognition of bad assets in 1997, it led to a sharp erosion of public faith in the financial system because it challenged existing notions that the government would support banks.
- When it became clear that the Japanese financial system lacked transparency, risky assets could not be priced effectively, and private savers and investors froze all activity.
- Fast economic growth can lead to complacency around risks. Rapid Japanese growth in the 1980s led to the overlooking of mounting risks, a mistake that would be repeated by other countries in the run up to the global financial crisis.