Common feature of recent financial crises
Posted in Uncategorized on February 27th, 2008 by Paul Deng – Be the first to comment
Martin Wolf had a wonderful piece on FT, where he summarizes common feature of all recent crises:
All these crises are different. But many have shared common features. They begin with capital inflows from foreigners seduced by tales of an economic El Dorado. This generates low real interest rates and a widening current account deficit. Domestic borrowing and spending surge, particularly investment in property. Asset prices soar, borrowing increases and the capital inflow grows. Finally, the bubble bursts, capital floods out and the banking system, burdened with mountains of bad debt, implodes.
