: The Lexus and The Olive Tree Summary: Opening Scene: The World Is Ten Years Old.
" The trouble spread to one continent after another like a virus." USA Today On December 8, 1997, the government of Thailand shut down 56 of their countries finance houses. These finance houses borrowed heavily in U.S. dollars and lent those dollars out to Thai businesses for the building of hotels, office blocks, luxury apartments and factories. Almost overnight, these private banks had been bankrupted by the crash of the Thai currency, the baht. This situation caused a domino effect on other leading businesses that caused money problems. Many businesses couldn't pay the finance houses back, many finance houses couldn't repay their foreign leaders and the whole system went into gridlock putting 20,000 white-collar employees out of work. The Thai crisis triggered a general flight of capital out of practically all the Southeast Asian emerging markets, driving down the value of currencies in South Korea, Malaysia and Indonesia.
Southeast Asian slowdown began to have an important effect on commodity prices around the world, including Russia. Too many of Russia's factories couldn't make anything of value. Without much of a growing economy, the Russian government became dependent on taxes from crude oil and other commodity exports to fund its operating budget.
The hedge funds - the huge unregulated pools of private capital that search the globe for the best investments - were the transmission device from Russia to all the other arising markets in the world, particularly Brazil. The declines in Brazil and the other emerging markets became the delivery that triggered a herdlike stampede into U.S. Treasury bonds. The abrupt drop in the yield on U.S. Treasury bonds was then the transferal device, which twisted more hedge funds and investment banks. In order...