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1997 Asian Crisis Redux - Thailand Is Imploding

Tyler Durden's picture





 

"There's no near-term resolution in sight," warns TCW Group's David Loevinger, as "Thailand has entered an extended period of political instability." This uncertainty has led to foreigners abandoning the nation's stock market in record  size - and collapsing the Thai Baht at the same time. Why should US investors be worried? Thailand was the catalyst that started the 1997 Asian crisis, broke LTCM, and instigated the most epic experiments in central bank liquidity provision on record. With the Fed Tapering, both Indonesia and Thailand (and Turkey) are already seeing major currency collapses but of course, as long as US equities rise, no one cares (which is exactly what they said last time)...

 

Bloomberg's Chart of the Day shows that the baht has plunged 5.1 percent since the end of October to a three-year low as international investors pulled a net $2.75 billion out of equities, the worst outflow in at least 14 years.

Investors are dumping Thai assets as two-month-old protests against Prime Minister Yingluck Shinawatra intensify, threatening to deepen a slowdown in the second-largest southeast Asian economy. Opposition parties are trying to topple Yingluck after she pushed for a bill that would provide amnesty for her brother, Thaksin, who was ousted as premier in a 2006 coup and has lived in self-imposed exile overseas.

Yingluck dissolved parliament on Dec. 9, a move that triggered new elections set for February, in a bid to ease tensions. The country’s election commission warned yesterday that the vote could wind up stoking more violence after protesters tried to storm a Bangkok arena where candidates were registering.

And as a reminder... what happened in the 1997 crisis...

The Asian financial crisis was a period of financial crisis that gripped much of Asia beginning in July 1997, and raised fears of a worldwide economic meltdown due to financial contagion.

 

The crisis started in Thailand with the financial collapse of the Thai baht after the Thai government was forced to float the baht due to lack of foreign currency to support its fixed exchange rate, cutting its peg to the US$, after exhaustive efforts to support it in the face of a severe financial overextension that was in part real estate driven. At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency. As the crisis spread, most of Southeast Asia and Japan saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt.

 

Indonesia, South Korea and Thailand were the countries most affected by the crisis.

 

...

 

The causes of the debacle are many and disputed. Thailand's economy developed into an economic bubble fueled by hot money. More and more was required as the size of the bubble grew. The same type of situation happened in Malaysia, and Indonesia, which had the added complication of what was called "crony capitalism". The short-term capital flow was expensive and often highly conditioned for quick profit. Development money went in a largely uncontrolled manner to certain people only, not particularly the best suited or most efficient, but those closest to the centers of power.

 

At the time of the mid-1990s, Thailand, Indonesia and South Korea had large private current account deficits and the maintenance of fixed exchange rates encouraged external borrowing and led to excessive exposure to foreign exchange risk in both the financial and corporate sectors.

 

In the mid-1990s, a series of external shocks began to change the economic environment – the devaluation of the Chinese renminbi and the Japanese yen, raising of US interest rates which led to a strong U.S. dollar, the sharp decline in semiconductor prices; adversely affected their growth.

 

...

 

Many economists believe that the Asian crisis was created not by market psychology or technology, but by policies that distorted incentives within the lender–borrower relationship. The resulting large quantities of credit that became available generated a highly leveraged economic climate, and pushed up asset prices to an unsustainable level

Sound familiar?

 


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Fri, 12/27/2013 - 18:05 | Link to Comment So Close
So Close's picture

Thai rhyme time.

 

Fri, 12/27/2013 - 18:08 | Link to Comment Boris Alatovkrap
Boris Alatovkrap's picture

Alway to be absolute sure cocktail waitress is not in actual a waiter.

Fri, 12/27/2013 - 18:23 | Link to Comment greatbeard
greatbeard's picture

>> sure cocktail waitress is not in actual a waiter

You sound like a man speaking from first hand experience.  Don't ask, don't tell.

Fri, 12/27/2013 - 18:28 | Link to Comment dick cheneys ghost
dick cheneys ghost's picture

la la la la Lola

Fri, 12/27/2013 - 18:32 | Link to Comment Boris Alatovkrap
Boris Alatovkrap's picture

Walk on wild side - Lou Reed

Sat, 12/28/2013 - 11:55 | Link to Comment Keyser
Keyser's picture

As the saying goes, the best looking women in Thailand are in fact, not women at all. 

 

Sat, 12/28/2013 - 16:14 | Link to Comment Miles Ahead
Miles Ahead's picture

What happens in Bangkok stays in Bangkok (unless it's currency related though).

Fri, 12/27/2013 - 18:28 | Link to Comment Colonel Klink
Colonel Klink's picture

Don't hate the player, hate the crying game!

Fri, 12/27/2013 - 20:08 | Link to Comment max2205
max2205's picture

LTCM was bullish for 3 more years after 1997...don't hold your breath

Fri, 12/27/2013 - 20:10 | Link to Comment aVileRat
aVileRat's picture

Yeah, Thailand is not that big of a deal unless they happen to take down someone new or dumb enough to be ultra-long Bhat 2016 contracts.

Come back when HK has capital controls put on, or we figure out which idiot is trying to corner Dr. Copper with that mega-long position.

 

Fri, 12/27/2013 - 21:38 | Link to Comment disabledvet
disabledvet's picture

Hong Kong has a currency board. I'm not sure who would have the authority to break its connection to the dollar. Right now with both the Dollar and Yuan going through the roof I'm not sure it matters actually. Obviously that is the most expensive real estate in the world...and has been for some time. At some point that won't be true anymore however.

Sat, 12/28/2013 - 00:17 | Link to Comment lewy14
lewy14's picture

Exactly.

What is the sound of one domino falling?

<Clatter>

The other EM currencies either have big forex reserves or have already declined precipitously in the taper tantrum (e.g. Indonesia). The network isn't primed for a cascade the way it was in 97.

If a Serbian assassinates an Austrian arch-duke next year though, I'll be pretty fuckin' spooked. Just sayin'.

Fri, 12/27/2013 - 18:48 | Link to Comment DriveByLurker
DriveByLurker's picture

What happens in Patapong, stays in Patapong.

 

...unless it's antibiotic resistant; then it just stays.

Sat, 12/28/2013 - 16:25 | Link to Comment Miles Ahead
Miles Ahead's picture

Tourist no doubt.

Patpong.

Locals avoid it like the plague.  What you can find there, can be found all over Bangkok... without tourist trash (present company excluded) getting all in your way.

Fri, 12/27/2013 - 20:42 | Link to Comment Clowns on Acid
Clowns on Acid's picture

actually from right hand experience....

Fri, 12/27/2013 - 18:58 | Link to Comment Rakshas
Rakshas's picture

Sadly, that advice could have been helpful a few months back; yadda yadda yadda took a beautiful Thai home only to find "she" was significantly more endowed than I - put me off so much I almost didn't F### that sonofabiotch....... lesson learned......

Fri, 12/27/2013 - 18:58 | Link to Comment nodhannum
nodhannum's picture

Damn Boris, so that is what happened when I unrapped that package.  It had a bigger unit than I had!

Fri, 12/27/2013 - 23:54 | Link to Comment Crusader79
Crusader79's picture

Another uninformed scary time article from Zero Hedge.

And the Eurozone is collapsing! Remember all those Cassandra articles?

2013 was a fantastic investment year, unless you were a Zero Hedge reader.

Sat, 12/28/2013 - 11:28 | Link to Comment Doña K
Doña K's picture

It's easy to make comments looking in the rear view mirror. Your 25% gain could have been an 80% loss instead. Would you make the same bet in 2014?

 

Fri, 12/27/2013 - 18:10 | Link to Comment Boris Alatovkrap
Boris Alatovkrap's picture

Long Term Capital, another nobel prize is award for things look good on paper but destroy on reality.

Fri, 12/27/2013 - 18:14 | Link to Comment dick cheneys ghost
dick cheneys ghost's picture

Is Tyler implying that the Fed taper is the cause of this?

Fri, 12/27/2013 - 18:20 | Link to Comment slotmouth
slotmouth's picture

Basically all EMs imploded as soon as it was announced.

Sat, 12/28/2013 - 07:42 | Link to Comment drdolittle
drdolittle's picture

Coincidence? I keep thinking this is a rhyme of great depression and wwII. Only China is the US this time.

Fri, 12/27/2013 - 18:23 | Link to Comment There is No Spoon
There is No Spoon's picture

thai stock market peaked months before the taper

Fri, 12/27/2013 - 20:02 | Link to Comment NOTaREALmerican
Fri, 12/27/2013 - 18:11 | Link to Comment Kirk2NCC1701
Kirk2NCC1701's picture

So what of our billionaire Swiss friend (M Faber) who promoted Thailand and lives there?

Is he leaving or staying?  Buying, holding or selling?

Fri, 12/27/2013 - 18:12 | Link to Comment Boris Alatovkrap
Boris Alatovkrap's picture

Sex Tourism is survive collapse of Bhat. Maybe is flourish with cheap local currency, no?

Fri, 12/27/2013 - 22:52 | Link to Comment turnoffthewater
turnoffthewater's picture

Marc is that you?

Fri, 12/27/2013 - 18:11 | Link to Comment Saucy-Jack
Saucy-Jack's picture

Baht the fucking dip...

Fri, 12/27/2013 - 18:11 | Link to Comment Boris Alatovkrap
Boris Alatovkrap's picture

Phat the bucking dip!

Fri, 12/27/2013 - 19:44 | Link to Comment SDShack
SDShack's picture

Sum Ting Wong

Baht Tu Lo

Ho Le Fuk

Fri, 12/27/2013 - 18:13 | Link to Comment Hindenburg...Oh Man
Hindenburg...Oh Man's picture

Me love you too much. 

Fri, 12/27/2013 - 18:14 | Link to Comment SeanJKerrigan
SeanJKerrigan's picture

So if their stocks are crumbling and currency strengthening, that means the Fed has room or justification to ease more right? Currency war principles are  still in play.

Fri, 12/27/2013 - 18:20 | Link to Comment IridiumRebel
IridiumRebel's picture

World feels like a powder keg with many matches at the ready.

Fri, 12/27/2013 - 23:42 | Link to Comment monkeyboy
monkeyboy's picture

Been like that for years, but the game goes on.

Sat, 12/28/2013 - 10:45 | Link to Comment Bindar Dundat
Bindar Dundat's picture

That feeling of waking up early,  to the smell of gasoline and feeling wet;  then seeing your ex at the end of the bed with a match in her hand and a smile on her face.

Fri, 12/27/2013 - 18:26 | Link to Comment MsCreant
MsCreant's picture

The Fed has this shit, relax, time to SWAP! 

Fri, 12/27/2013 - 18:32 | Link to Comment Colonel Klink
Colonel Klink's picture

http://www.youtube.com/watch?v=hRN7nh7-eZI

About 1 minute in.  Collect the $1 bills and say good bye to the donkey.

Fri, 12/27/2013 - 18:39 | Link to Comment Zero Point
Zero Point's picture

Yellenke:

"Well son, looks like I have some work to do".

Fri, 12/27/2013 - 18:41 | Link to Comment Richard Whitney
Richard Whitney's picture

Russian bonds broke LTCM.

Fri, 12/27/2013 - 21:41 | Link to Comment disabledvet
disabledvet's picture

this is actually true. people forget the Russian default. If Putin is hanging by a thread you don't want to be long commodities.

Sat, 12/28/2013 - 05:00 | Link to Comment malek
malek's picture

Exactly.
To tie LTCM's implosion to Thailand is 100% pure bullshit.

Fri, 12/27/2013 - 18:47 | Link to Comment Paracelsus
Paracelsus's picture

Ah yes,Long Term Capital Management,LTCM,the "Canary in the Coal mine".

Just Google the late,great "TANTA" Dungey.Her stuff is brilliant.If a firm is leveraged 25 times or so,it only takes a five percent swing against your position to wipe you out.Most big banks are leveraged much more than 25 times.

Now two points,boys and girls.

1) The Fed gathered all the big sharks together at gunpoint and said "SORT IT!".So they passed the hat to unwind the position.Supposedly this rescue required no public money.

BECAUSE THEY WANTED TO AVOID THE ISSUE OF MORAL HAZARD.

2) The one mob that declined to participate was Merrill Lynch.Long memories on Wall Street.So come the day that THEY need a bailout....... 

Fri, 12/27/2013 - 20:36 | Link to Comment 0b1knob
0b1knob's picture

I've heard the same story, only it was Lehman which refused to help.   So when Lehman got in trouble, no one would help them.

No honor amoung theives.

Fri, 12/27/2013 - 21:46 | Link to Comment disabledvet
disabledvet's picture

Bear Stearns, not Merril. http://www.financialsense.com/contributors/dock-treece/bear-stearns-the-... Interestingly "part of the problem when Bear was failing in 2008." Of course this worked to Bear's failure when no one realized this was part of a "contagion." Bear actually did find a buyer...at a ridiculously cheap price. Lehman was not so lucky.

Fri, 12/27/2013 - 18:55 | Link to Comment Number 156
Number 156's picture

My immediate response as soon as I saw the chart:  "OH Shit!"

Fri, 12/27/2013 - 19:11 | Link to Comment falak pema
falak pema's picture

What did they say about a butterfly and a tsunami?

Is there an arc extending from Turkey out to extreme asia?

Reset comes in strange ways! 

Fri, 12/27/2013 - 19:56 | Link to Comment NOTaREALmerican
NOTaREALmerican's picture

Thai Bhat is M3 on the Stardard International Thai Menu (SITM). 

Fri, 12/27/2013 - 20:04 | Link to Comment pachanguero
pachanguero's picture

As I live here in Pattaya Thailand this is great news for me!  chheaper and the girls are even more cheaper!

Fri, 12/27/2013 - 20:33 | Link to Comment Big Johnson
Big Johnson's picture

Amen brother. That 41 to 1 US$ exchange rate meant for a good time in 97.

Fri, 12/27/2013 - 20:34 | Link to Comment Big Johnson
Big Johnson's picture

As a follow up: Since you live in Asia you need to drop the fallang avatar and go with a more local hot piece.

Fri, 12/27/2013 - 20:39 | Link to Comment Clowns on Acid
Clowns on Acid's picture

Unless of course that avatar is pachy's actual picture.....ahem.

Sat, 12/28/2013 - 12:06 | Link to Comment Keyser
Keyser's picture

You learn to speak Russian yet? 

Fri, 12/27/2013 - 20:53 | Link to Comment virgilcaine
virgilcaine's picture

The Baht is cratering from Much higher levels than 07-08. This could get interesting.

Fri, 12/27/2013 - 22:28 | Link to Comment webspin
webspin's picture

"

Thailand Is Imploding"?!?

Most bullish thing ZH has ever posted. You sure it's not cratering, collapsing, melting down, disintegrating, bankrupt, sign of the four horseman...

 

Just imploding?

Fri, 12/27/2013 - 23:26 | Link to Comment laosuwan
laosuwan's picture

One thing you must understand about Thailand is nobody, and I mean nobody, especiallygovernment and those whose votes it bought, ever repays a loan or honors a contract, or pays taxes for that matter. Thailand has been bankrupt since 2010 but has been holding on with low interest rates and credit, both at the government and consumer levels. Rolling debt over, and over. The game is almost up now with Thai families leveraged at more than 2 times annual income and the government trying to issue bonds to pay subsidies on rice to buy the votes of farmers for the upcoming elections.

Crime and the breakdown of law and order have reached levels I have not seen before. the shinawatra crime syndicate has stolen everything not nailed down and they are now trying to do treaties without parliament vote giving up rights to patent on local herbs and medicines, bringing in GMOs, even trying to build a US military base without a vote of parliament. the shinawatras have brought back their cambodian mercenaries to bangkok and they are picking off the opposition with sniper fire while the globalist BBC and other corporate media spin the story of shinawatra's as fighters for democracy. For more on this check out http://landdestroyer.blogspot.com/

 

So, yes, I agree with Tyler the game is almost up and a civil war is inevitable in Bangkok. The Thai are hopelessly disorganized but eventally we get out of be and tie our shoes. It's just a matter of when.

 

 

Sat, 12/28/2013 - 04:37 | Link to Comment o2sd
o2sd's picture

The Thais are the most peaceful people on earth, right up until the point where they become the most violent people on earth. Bless em.

 

Sat, 12/28/2013 - 12:16 | Link to Comment Keyser
Keyser's picture

The King has the power to stop the political upheaval with one word. He is the ultimate authority in the country and the only solidifying figure that holds sway over all factions. He could also help to a degree with the fiscal problems considering that he is the wealthiest monarch on the planet, along with owning millions of rai of land in the country. The question is when he will release the military once again to bring peace. A certain maggot in Dubai needs to be dealt with though, one way or the other. 

 

Sat, 12/28/2013 - 00:41 | Link to Comment MrSteve
MrSteve's picture

"Indonesia, South Korea and Thailand were the countries most affected by the crisis".... whatta great horseshit quote: the Russian ruble, etc. collapse in 1998 wasn't a huge deal? A globe-straddling thermonuclear-armed state collapses and it doesn't matter? Is this article a cartoon of disinformation or just lame? Maybe their fact-checker has never heard of Wikipedia???

Filter this infotainment like it came from the NY Post Page Six or something....

Sat, 12/28/2013 - 02:58 | Link to Comment Marigold
Marigold's picture

The army chief has announced that they are not ruling out another coup if the situation gets out of hand. They have also indicated that a sinister hand ie Thaksin is responsible for the shooting of anti government protesters.

Sat, 12/28/2013 - 09:38 | Link to Comment torak
Sat, 12/28/2013 - 09:34 | Link to Comment torak
torak's picture

First currency to the bottom wins!

Do NOT follow this link or you will be banned from the site!