ad info




TIME Asia
TIME Asia Home
Current Issue
Magazine Archive
Asia Buzz
Travel Watch
Web Features
  Entertainment
  Photo Essays

Subscribe to TIME
Customer Services
About Us
Write to TIME Asia

TIME.com
TIME Canada
TIME Europe
TIME Pacific
TIME Digital
Asiaweek
Latest CNN News

Young China
Olympics 2000
On The Road

 ASIAWEEK.COM
 CNN.COM
  east asia
  southeast asia
  south asia
  central asia
  australasia
 BUSINESS
 SPORTS
 SHOWBIZ
 ASIA WEATHER
 ASIA TRAVEL


Other News
From TIME Asia

Culture on Demand: Black is Beautiful
The American Express black card is the ultimate status symbol

Asia Buzz: Should the Net Be Free?
Web heads want it all -- for nothing

JAPAN: Failed Revolution
Prime Minister Yoshiro Mori clings to power as dissidents in his party finally decide not to back a no-confidence motion

Cover: Endgame?
After Florida's controversial ballot recount, Bush holds a 537-vote lead in the state, which could give him the election

TIME Digest
FORTUNE.com
FORTUNE China
MONEY.com

TIME Asia Services
Subscribe
Subscribe to TIME! Get up to 3 MONTHS FREE!

Bookmark TIME
TIME Media Kit
Recent awards

TIME Asia Asiaweek Asia Now TIME Asia story
And awful as the Asian correction is, it was, in a sense, inevitable because those economies had trundled billions of dollars into useless real estate and industrial development. "In general," said Summers, 44, as he sat in the Frankfurt airport last September recovering from a hectic trip to Moscow, "we start with the idea that you can't repeal the laws of economics. Even if they are inconvenient." Over dinner recently someone congratulated Rubin on the booming U.S. economy and pointed out that one international magazine had been uniformly wrong in its predictions of a global collapse. The Secretary wasn't biting: "Everything is probabilistic," he said. The battle continues.

The conventional wisdom is that the economic anxiety now gripping much of the world has its roots in the collapse of Thailand's currency, the baht, in July 1997, after investors discovered that Thailand's economic boom was built on a base as solid as a bowl of pad Thai noodles. But the roots actually reach back further, to Black Monday, Oct. 19, 1987, when the Dow Jones industrial average shed 22.6% of its value in a single day. The market, of course, rebounded--and how. But at the time, professional investors thought U.S. stocks were due for a decade of slow-to-sluggish performance. Their eyes--and wallets--quickly alighted on the world's so-called emerging markets. These nations, allegedly "emerging" from centuries of economic backwardness, were posting phenomenal growth rates: Malaysia grew 9.5% in one year, Thailand 13%. Investors--especially young portfolio managers entranced by Malaysian food and Thai night life--rushed to get in.

Between 1987 and 1997, half a trillion dollars flowed in from international investors. Initially the money was a godsend. It gave companies access to world-class technology and know-how. But in cities such as Jakarta or Kuala Lumpur or Bangkok, there aren't a whole lot of world-class companies. And as share prices of those rare firms rose, investors poured money into other, less well-run companies. At the height of the boom, in 1996, office space in Bangkok was commanding First World rents; in Jakarta supermodels Claudia Schiffer and Naomi Campbell inaugurated a Fashion Cafe, and in Kuala Lumpur the world's tallest building opened for business.

Of course it couldn't last. In late 1996 the warp-speed growth in many of these nations began to slow--an inevitable turn in the business cycle. But the stutter was enough to panic a few investors, who headed for the exits. That set off a rapid spiral of defaults that became known as the Asian Contagion. Thailand's problems quickly became Indonesia's, then Korea's, in a dangerous daisy chain that is still looping together--witness last month's shuddering devaluation of the Brazilian real.

The initial downturn didn't surprise the Fed or the Treasury too much. For the better part of two years, Greenspan and Rubin had been quietly fretting about the narrowing "spread"--the difference in interest rates--between U.S. bonds and emerging-market bonds. By 1996 banks were lending money to countries such as Malaysia at interest rates just a few percentage points above what the U.S. Treasuries commanded. The implication: Malaysia was not a much riskier bet than the U.S. This was nonsense, and the committee knew some correction was in order.

But the speed of the collapse, when it came, was breathtaking, and proof that world markets had entered a new and much more volatile phase. Summers has a favorite analogy: "Global capital markets pose the same kinds of problems that jet planes do. They are faster, more comfortable, and they get you where you are going better. But the crashes are much more spectacular."

The three men trying to cope with these mid-ether collisions of dollars and expectations are an unlikely team. Greenspan, the data-loving analyst with government roots sunk back into the financial and moral chaos of the Nixon Administration, and a shaman-like power over global markets. Rubin, the Goldman Sachs wonder boy who ran the firm's complex and dangerous arbitrage operations and then led it to rocket-ship international growth. And Summers, the Harvard-trained academic who is invariably called the Kissinger of economics: a total pragmatist whose ambition sometimes grates but whose intellect never fails to dazzle.

What holds them together is a passion for thinking and an inextinguishable curiosity about a new economic order that is unfolding before them like an Alice in Wonderland world. The sheer fascination of inventing a 21st century financial system motivates them more than the usual Washington drugs of power and money. In the past six years the three men have merged into a kind of brotherhood, with an easy rapport.

Spending time with them is like sitting in on a meeting of the M.I.T. economics faculty, a kind of miniature world in which everyone has his own idiosyncrasies and idea-wrestling is the pastime. The conversation is by turns uproarious and serious. They may not finish one another's sentences, but they clearly can finish one another's thoughts. And there is tremendous camaraderie. "Let me tell you this about Alan's tennis game," jokes Summers, an occasional opponent on the court. "He is very good [pause] for his age." Says Greenspan, with a broad grin designed to mask what is either sarcasm or a psych job: "Larry is really almost as good as a professional player."

PAGE 1  |  2  |  3  |  4  |  5




Daily

February 15, 1999

Davos: Speaking in Tongues
The international heavyweights talk a lot--past each other


This edition's table of contents | TIME Asia home

AsiaNow


   LATEST HEADLINES:

WASHINGTON
U.S. secretary of state says China should be 'tolerant'

MANILA
Philippine government denies Estrada's claim to presidency

ALLAHABAD
Faith, madness, magic mix at sacred Hindu festival

COLOMBO
Land mine explosion kills 11 Sri Lankan soldiers

TOKYO
Japan claims StarLink found in U.S. corn sample

BANGKOK
Thai party announces first coalition partner



TIME:

COVER: President Joseph Estrada gives in to the chanting crowds on the streets of Manila and agrees to make room for his Vice President

THAILAND: Twin teenage warriors turn themselves in to Bangkok officials

CHINA: Despite official vilification, hip Chinese dig Lamaist culture

PHOTO ESSAY: Estrada Calls Snap Election

WEB-ONLY INTERVIEW: Jimmy Lai on feeling lucky -- and why he's committed to the island state



ASIAWEEK:

COVER: The DoCoMo generation - Japan's leading mobile phone company goes global

Bandwidth Boom: Racing to wire - how underseas cable systems may yet fall short

TAIWAN: Party intrigues add to Chen Shui-bian's woes

JAPAN: Japan's ruling party crushes a rebel ì at a cost

SINGAPORE: Singaporeans need to have more babies. But success breeds selfishness


Launch CNN's Desktop Ticker and get the latest news, delivered right on your desktop!

Today on CNN
 Search

Back to the top   © 2000 Time Inc. All Rights Reserved.
Terms under which this service is provided to you.
Read our privacy guidelines.