Parallels between the Crises in Asia (1997) and the US

Despite all the complexities of financial markets and financial products, when there is a crisis the problem can often be broken down to simple economic issues. The parallels between the 1997 Asian Financial Crisis and the current US Financial market meltdown are so staggering, chief central bankers in Asia can be sent now to US to lecture Bernanke and Paulson.

Here are the similarities:
1. Overexposure to real estate
Awash with foreign earnings, Asian banks started lending heavily to companies. Since it was very easy to obtain credit, private companies invested heavily in real estate, even if their main business has very little to do with property. Even fly-by-night companies can get a loan to build a subdivision or condominium.

In the US, the mortgage market kept on expanding since China's appetite for American securities seem insatiable. Small mortgage companies provided housing loans to everybody, including NINJAs (people with No Income, No Jobs, no Assets).

2. Lack of regulation
The expansion of the financial market in Asia in the 1980s and early 1990s was so fast, regulators (Central Banks, SECs and finance departments/ ministries) were caught flat-footed. Institutions for monitoring and regulating real estate markets were either missing or ill-equipped. In the Philippines, the alphabet soup of regulatory agencies (McCain's favorite term, until recently) dealing with the housing market is still in disarray. The agencies with housing in its name include HLURB, HUDCC, HMF (Pag-ibig Fund), NHMF, NHA, HGC, and SHFC (with so many homeless people in the Philippines, I am not sure what do they all do).

In the US, the regulations put in place after the Great Depression were gradually removed by the government. Hence, there is a call for greater regulation and oversight in the current US elections. (Actually after the US$70 billion bailout package, they don't need to regulate anything anymore since they'll end up partially owning the entire financial industry.)

3. Corruption
Companies owned by government officials, their families and cronies benefited a lot from the housing and lending booms in Asia before the crisis struck. And when the government injected money to revive the industry, they benefited once more (I think we have a very rich senator who made a lot of money from banking and real estate).

In the US, the corruption is not that obvious... they call it lobbying. Lobbyists push congress and the government to loosen regulations and to look the other way. Worse, they actually use economic studies to push their corrupt cause.

4. Politics
In several countries in Asia, the financial crisis led to a change in leadership. Populists with a pro-poor agenda won in South Korea, Indonesia, Thailand and the Philippines. On whether they fulfilled their campaign promises is another matter.

In the US, the economic mess by the Republican Bush administration seem to benefit the Democrats led by Barrack Obama.

5. Bailout
With the economy in a mess, it needs bailing out. In Asia, the IMF, ADB and World Bank contributed for bailout funds for the Asian economies.

In the US, they are bailing out themselves probably by borrowing internationally. If they were in Zimbabwe, they would simply print more money until everybody becomes a trillionaire.