Nowhere to Hide: The Great Financial Crisis and Challenges for Asia

Nowhere to Hide: The Great Financial Crisis and Challenges for Asia
Date of publication:  2010
Publisher:  Institute of Southeast Asian Studies
Number of pages:  174
Code:  BM405
Soft Cover
ISBN: 9789814279734
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"Nowhere to Hide gives a short introduction to the main causes of the crisis, and can also be a rewarding read for more advanced readers. Since the onset of the financial crisis in 2007, three major narratives have emerged to explain it. The first lays the blame squarely on economic theory. The second narrative takes a different tack. It emphasizes the innovations, incentive structures and firm-level practices in the financial industry. The third narrative focuses on macroeconomic forces. Lim Mah-Hui and Lim Chin provide a competent account of the three major narratives. Readers looking for a short introduction to the main causes of the crisis will do well to start with this thin book which is one of the most readable, least intimidating books on the crisis in the market today. Nowhere to Hide is a fine little book that gives a concise and compelling introduction to the crisis. It deserves a place on the bookshelves of policymakers and students of financial crises alike" (Business Times).

"Nowhere to Hide presents a nontechnical analysis on the origins of the 2008 Global Crisis. It was written for people who might ask: 'Why did no one see this crisis coming?' Beyond the nontechnical analysis, the authors inadvertently highlighted aspects that have been glossed over in the ongoing discussions about the Global Crisis, namely: explanations on why the crisis occurred is a crisis in itself. First of all, neoclassical economics may be the theory of apologists of liberalization and deregulation but the theory itself was not the cause of the crisis. Many jump to the conclusion that what the theory posits is what reality should conform. So there lies the problem: the mismatch between economic theory and economic reality. There lies another problem: the inability to see that what can hold at the micro level may not hold at the macro level. Why the gap? The first answer concerns political economy. The problem is when the theory is mixed with a form of libertarian philosophy that stresses individual freedom and entrepreneurship at all levels, thereby producing a blend of thinking that rejects government intervention as one of the possible solutions to economic problems. The second aspect is the teaching of economics. Most teachers forget that neoclassical economics is an ideal theorization of economic processes in the advanced economies. Teaching it is therefore problematic because the framework does not fit the realities in developing economies. The theory needs to be modified" (Philippine Daily Inquirer).

"The ongoing problems of Greece and the euro zone provide a timely reminder that the recent global financial crisis is not over. Indeed, increasingly frequent financial crises may now be 'the new normal' in the global economy, with attendant implications for Asia. Dr Michael Lim Mah-Hui, an experienced international banker, and National University of Singapore Business School's Professor Lim Chin have produced an extraordinarily useful guide to understanding the phenomena at work. The slim volume explains, in language (mostly) intelligible to the layman, what happened, the causes and how we will continue to be affected. Dr Lim and Prof Lim expertly draw together, and neatly connect, the various explanations that have been given of the crisis, which originated in the United States. The challenges for Asia that the authors identify include the limits of export-led growth; the dangers of free capital flows; and foreign exchange reserves now over-invested in the US. This thoughtful book provides a sobering look back that is also a warning about what is still to come, if we, and the world, do not change" (The Straits Times).

"The number of books on the US financial crisis which erupted in 2007 and plunged the world into an economic recession just keeps growing. This book is a welcome addition to this growing literature. It is written in a breezy and readable style and attempts to explain to the layman, in a brief compass, the causes of this crisis. It also has the added merit of highlighting the many issues and debates which the crisis has raised. The authors contend that the crisis should be analysed at three inter-related levels: the level of theory and ideology; the level of financial industry practices and malpractices; and finally at the level of the structural imbalances in the international economy" (Third World Resurgence).

"There is a place for these books reporting the financial crisis from ground zero. But it seems curious that few books tell the story of the financial crisis from the perspective of the East. This omission is particularly curious since most of Asia has, so far at least, remained relatively unscathed by the crisis and some Asian countries are even thriving in these trying times. An objective observer would like to know what Asian bankers and business people did right that made this state of affairs possible, and whether it was the result of design or luck. Nowhere to Hide: The Great Financial Crisis and Challenges for Asia by Michael Lim Mah Hui and Lim Chin, helps fill this gap in the story of the financial crisis. It is a slim and succinct volume that tells the entire story in a concise fashion. Anyone interested in a densely argued history of the financial markets and the causes that precipitated the crisis from an Asian point of view will benefit from reading this book" (Bangkok Post).

"Lim Mah Hui and Lim Chin's work is a timely addition to the growing literature seeking to explain the causes of the crisis and the shortcomings of the global economy that have made the world vulnerable to them. It details the economic environment and the complexities of the financial structures and instruments in the US financial system that led to the 'subprime' crisis which quickly went global. While these developments were the proximate causes of the crisis, the authors allude to three structural imbalances -- between the size of the financial and real sectors, between countries with current account deficits and those with current account surpluses, and in wealth and income in the USA. The book then examines the implications of the crisis for Asia, first in terms of its impact, then of the policy responses of Asian countries adversely affected and, finally, of the challenges posed to Asia as a consequence of the global financial crisis (GFC). It concludes by discussing three areas of tension that continue to confront the global economy post-GFC. The first refers to the dominance of the USA in the international monetary system. The second addresses the tension between the financial and the real economy, with the dangers of the former dominating the latter. The third refers to the conflict between ideas -- between neo-liberals and those who advocate a proactive role of government. Four major arguments advanced by the authors are pertinent for leaders of the developed countries to consider if they are sincere in wanting to reduce the incidence and intensity of financial crises. The first dismisses the efficient market thesis on financial governance. The detailed evidence depicting the proliferation of financial instruments dictated by private agents as having led to the opening of a can of worms should scare sincere government leaders about what markets left to themselves could do to wreak havoc on years of development. The second argues about the expansion of three macro-economic imbalances in the USA and the global economy that were left too long to continue: one, the growing gap between the financial and the real sector; the wealth and income imbalance in the distribution of resources in the USA, and the chronic current account deficits. Of these three imbalances, the USA managed to maintain stability despite facing chronic current account imbalances over several decades, but it has severely reduced the government's capacity to manage its macro-economics following such a debilitating hit from the financial crisis. The third relates to the disproportionate nature of incomes. High inequalities provide the ammunition for speculative attacks as the rich raise their potential capacity to move capital across the world in search of high returns, as well as, in some cases, seeking cover against scrutiny. Skewed profits inextricably arise from low wages paid to workers. This leads the authors to the fourth important evidence-supported argument -- that wages and salaries have grown far more slowly than profits in the USA, which leads us to the ill-effects of under-consumption on economic growth. The focus on necessary rather than luxury consumption was discussed in detail by Kalecki, who targeted productive accumulation as the route to economic development. Overall, this is a wonderful book; it not only provides an incisive and coherent attack on the fragile pillars on which rests the existing financial architecture of the global economy, but also presents it in simple and concise language. It should be a must read for all those concerned about the future of the world economy" (Journal of Contemporary Asia).

About the publication

This book takes a multi-disciplinary approach to the great financial crisis of 2007-09. It combines the disciplines of economics, finance, sociology and politics to analyse the causes, consequences and challenges of the crisis. The authors propose that the causes of the crisis should be understood at three inter-related levels - the level of theory and ideology; the level of financial industry practices and malpractices; and finally the level of structural imbalances in the international economy. Above all, the book is historical and holistic in perspective.
           This book is an excellent read for the critical layman interested in understanding the causes that underlie the global financial crisis. The authors combine the inquisitive and critical mind of a scholar and the lucid writing style of a journalist. The book provides a perspective on the crisis that is both practical and down to earth and at the same time, rigorous and holistic. - Khor Hoe Ee, Chief Economist, Abu Dhabi Council for Economic Development, and former Assistant Managing Director, Economics, Monetary Authority of Singapore
           The authors trace the rise of finance and its domination over the real economy, the consequences of financial innovation and deregulation for systemic fragility, and the failure of conventional economic and financial theory to analyse and anticipate the consequent dangers. Their main original contribution is to relate these Western market developments to recent trends in the East Asian region and to call for appropriate systemic reforms, not only to avoid similar future crises, but also to address other underlying development and analytical problems. - K.S. Jomo, Assistant Secretary General, Department of Economic and Social Affairs, United Nations
           In linking wealth and income distribution to financial instability, this book makes an important point that is often missed in the debate on the crisis. Central Banks have become strongly opposed to the idea of accommodating wage demands with the help of monetary easing, but they have been increasingly tolerant, or even supportive, of debt-financed consumption and asset inflation. Indeed, by serving to concentrate wealth further in the hands of a small rentier class, while protecting that class from the risks of debt defaults, they are only adding to systemic pressures that give rise to serious financial crises. - Yilmaz Akyuz, Special Economic Advisor, South Centre, and former Chief Economist at United Nations Conference for Trade and Development


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