The Asian financial crisis, which began in 1997, dramatically affected the citizens of East Asia, particularly those in Thailand, South Korea, Malaysia, Indonesia, and Hong Kong. People who had long been accustomed to relatively high growth in a generally stable regional environment suddenly faced quarter on quarter of negative growth, deflation, and mushrooming unemployment levels. It was the first time that many in East Asia had ever experienced such deep-seated, pervasive economic turmoil.
Andrew Sheng's book provides a truly “ringside” account of the Asian financial crisis as it unfolded (p. 1), and traces its effects up to a decade later. As indicated by its subtitle, it provides the reader with a unique perspective—that of a senior regulator with detailed knowledge of the regional as well as global regulatory system—a view that brings with it much fine-grained analysis of the ins and outs of finance and economics. Such a perspective is sorely lacking and therefore worthy of attention.
Although Sheng claims that the current global financial crisis is a third reason for publishing the book, it would be more accurate to characterize this as an ex post justification, as he observes that he was putting the “finishing touches” on a version of the book in “the summer of 2007” (p. 4). While that circumstance undoubtedly increases the book's timeliness and interest to current readers, his treatment of the current global crisis, as I will suggest, suffers by comparison with his detailed and deeply informed analysis of the Asian financial crisis. Finally, Sheng claims, he wrote this book in order to lay out “a framework for thinking about the role of financial regulation in financial stability and crisis” (p. 6), providing it with a subtext that addresses economic philosophy more broadly.
First and foremost, the book provides a professional and holistic analysis of the Asian financial crisis from start to finish, explaining in exhaustive detail the changes that took place in the infrastructure, regulatory frameworks, political regimes, and governments during, immediately after, and several years beyond the crisis. However successfully Sheng fulfills his self-professed reasons for writing the book, it stands on its own merits as a comprehensive, analytical account of the great crisis of the late 1990s.
The four factors that led to the Asian financial crisis, according to Sheng, were globalization, technology, financial innovation, and deregulation. Of these four, globalization, or the extensive, deep-seated interdependence of the world's economies, carries the greatest explanatory power, as he traces the origins of the Asian crisis to the slowdown in Japan that began in the very early 1990s (with the yen “carry” trade playing a prominent role).
The current global financial crisis resulted from a confluence of these same four factors, although the current downturn is, of course, larger in both scope and complexity. In this way, Sheng shows us that there is nothing all that new a decade later—history, in essence, has repeated itself. In this respect, then, one can trace the history of economic bubbles at least as far back as Scottish journalist's Charles Mackay's book Extraordinary Popular Delusions and the Madness of Crowds, a history of popular folly first published in 1841 (which Sheng surprisingly does not cite). The personal excess, greed, and irrational exuberance (the lifeblood of economic bubbles) detailed by Mackay strike a particularly poignant note when juxtaposed with Sheng's account.
As exhaustive and meticulous as Sheng's account is, the book is not successful in every respect. First, his examination of the current global financial crisis seems rather like an afterthought, albeit one he could hardly avoid acknowledging. Given the timing, one cannot help but assume that Sheng knew that if he published his book with no reference to what would have been an unfolding crisis dominating the headlines, its relevance might have been questioned. Yet although the book does indeed encompass the current crisis, it is not treated nearly as comprehensively as the Asian financial crisis. Furthermore, as the global financial crisis is nowhere near to being over (think Greece 2009–10), the investigation of and postmortems on the global crisis inevitably end abruptly and without a resolution comparable to that given to the Asian crisis.
Second, the effects of the Asian crisis on Singapore's economy are not examined as thoroughly or as deeply as are its effects on other East Asian economies, such as those of Thailand, South Korea, Malaysia, Indonesia, and Hong Kong. With its thin analysis of Singapore, the book deprives the reader of, for example, an apt benchmark against which to compare Hong Kong's experience. Given the similarities between the two economies, one might well have expected a more trenchant analysis of their responses to the crisis.
Finally, while Sheng claims to provide a ringside account of the Asian financial crisis—and indeed, he does so throughout most of the book's analysis—the abundant personal insights strangely disappear when he discusses Hong Kong. This is surprising not least because the author served as deputy chief executive of the Hong Kong Monetary Authority when the Asian crisis first hit the region, and also as chairman of the Hong Kong Securities and Futures Commission. Here, it would seem, Sheng should have been best able to relate the true insider's perspective, conveyed through the most revelatory anecdotes, on the regulatory regime as it struggled to manage the excesses of a financial world run amok.
Against the backdrop of Sheng's tour de force in analysis and exposition, however, these minor drawbacks detract only a little from the book's value. Sheng takes the reader on a wonderfully vivid journey not only through the full course of the Asian financial crisis, but also, by virtue of chapters individually dedicated to the hardest hit of Asian economies, through its greatest depths. His regulator's perspective comes across as genuine and responsible (unlike those of some other high-flying regulators against whom he takes gentle aim). He seems sincere in his concern for the greater social good, and in that respect, his final chapter offers insightful normative lessons to be learned from the crises as he turns to abstract questions of economic philosophy in considering how best to balance free market capitalism with regulatory control. In his view, this is a crucial dilemma: how to utilize the efficiencies of market forces and yet regulate them to prevent excesses and instability. Too much government is bad, and too much unfettered markets is also bad (p. 400).
Even if Sheng is unable to address the current global crisis as thoroughly or deeply as he does the Asian financial crisis of the late 1990s, the relative imbalance of the book as a whole gives way to a concluding chapter that speaks directly to those affected by and attempting to cope with today's crisis. Although Sheng strikes a somewhat optimistic tone about the course of the current crisis, it seems likely to persist long after he would have predicted its end. On the other hand, we find in his conclusion considerably less optimism about the prospects of avoiding the next crisis.
Nevertheless, peppered generously with maxims and idioms that stand the test of time, this book is an invaluable must-read for anyone interested in making sense of financial policy and global economics when things go wrong. It provides abundant food for thought about how to create a global economic system that is less vulnerable to crisis than ours has proven to be.
