Asia's financial crisis: Origins and impacts
John Kimball Dietrich
University of Colorado at Denver and Health Sciences Center
Institute for International Business and
Global Executive Forum
Center for International Business Education & Research
John Kimball Dietrich is an associate professor of finance at the University of Southern California,
Marshall School of Business. His areas of expertise are business economics, financial institutions and
markets, international finance, and international trade. He holds an M.A. in economics from the University
of Chicago, and a Ph.D. in economics from the University of Michigan.
The reasons for the Asian financial crisis become easier to understand when viewed against the
backdrop of the 1980's S&L crisis in the United States, Kim Dietrich said in a presentation to the Global
Executive Forum. The similarities include what Dietrich calls a "hide and grow" strategy, lack of regulatory
oversight, and greed, fraud and incompetence on the parts of those who ran the institutions.
In the early '80s, the U.S. government addressed the problems in the S&L industry by expanding its
powers through deregulation and hoping the industry would grow out of its malaise (see sidebar below).
This "hide and grow" strategy allowed the managers of the S&Ls, the regulators and politicians to delay
taking the bitter pills that were necessary to right the situation.
The S&Ls responded to deregulation by abusing their new powers and taking high risk, high return
gambles. The problems got bigger. Ultimately, the government was forced to deal with the problems in
the now infamous multi-billion dollar bailout of the S&L industry
Relationships, not stability
Hide and grow has also been the strategy of choice in many Asian countries, where loans are often made
on the basis of relationships rather than the financial stability of the borrower.
In Korea, the chaebols were in a prime position to receive financing, no questions asked, and no pressure