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Speaker 1: Twenty years ago this week, a momentous event, a hundred

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Speaker 1: and fifty six years in the making, finally took place,

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Speaker 1: the handover of Hong Kong to China. The world was

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Speaker 1: transfixed for the first time before or since loomed the

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Speaker 1: peaceful handover of a capitalist economy to a communist regime.

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Speaker 1: Would China maintain the rule of law as Beijing promised,

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Speaker 1: uphold Hong Kong's freewheeling ways, an unfettered stock market among

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Speaker 1: the largest in Asia. Those were the kind of issues

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Speaker 1: that dominated headlines around the world, and the journalist Gift

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Speaker 1: was sure to keep giving right wrong, right region, wrong country,

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Speaker 1: I mean sorry, special administrative region. Welcome to benchmark. I'm

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Speaker 1: Malcolm Scott in Hong Kong, and you're right. Then, just

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Speaker 1: one day after Prince Charles sailed out of Hong Kong,

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Speaker 1: harbor financial calamity erupted in Bangkok and proceeded to ripple

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Speaker 1: through Indonesia, South Korea, and eventually Russia and Brazil. It

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Speaker 1: was the first truly global financial crisis of the modern era,

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Speaker 1: and in retrospect, a harborer of things to come in

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Speaker 1: the US. Today, Dan and I take stock of the

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Speaker 1: Asian financial crisis and the lessons we learned or the

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Speaker 1: ones that we ignored to our peril. Why is it

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Speaker 1: that these crises keep erupting our disruptions, such as the

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Speaker 1: two thousand and eight US mortgage implosion the inevitable consequence

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Speaker 1: of a capitalist market system. Joining us are Bloomberg journalists

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Speaker 1: who covered the Asian financial crisis as it unfolded, starting

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Speaker 1: with that fateful decision by Thailand to stop defending its

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Speaker 1: currency the BART. I watched the Bart's implosion from next

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Speaker 1: door in Malaysia. Let's introduce the rest of the panel.

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Speaker 1: Alec McCabe reported on the region extensively from Hong Kong.

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Speaker 1: Former Hong Kong Bureau chief reminds us was born in

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Speaker 1: Hong Kong. Lee Miller Bureau chief in Bangkok at the time,

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Speaker 1: and Malcolm you are now managing editor Frasier Economics based

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Speaker 1: in Hong Kong. Well, let's put this in some sort

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Speaker 1: of context. Remember, Asia's relationship with the West was very

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Speaker 1: different twenty years ago. It was the era of the

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Speaker 1: Tiger economies. Nations that had suffered economically since the end

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Speaker 1: of the Vietnam War not only regained their footing, were

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Speaker 1: poised to remake themselves and in some instances had as

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Speaker 1: low cost manufacturing powerhouses. It was around this time we

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Speaker 1: began to shed the phrase third world country in favor

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Speaker 1: of less developed nation, a subtle but powerful hint of

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Speaker 1: a new respect for Asia. So when Thailand surrendered its currency,

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Speaker 1: it was as if the first spider web of cracks

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Speaker 1: had appeared in the new narrative. Let's listen in as

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Speaker 1: ALEC interviews economist David one week after Thailand's decision. Thailand's

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Speaker 1: decision to flow to the currency he bought has big

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Speaker 1: implications for other Asian countries. Joining us in Hong Kong

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Speaker 1: is David Roach. He's the president of Independent Strategy. For

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Speaker 1: a look at what lines ahead for Thailand and post

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Speaker 1: hand over Hong Kong, thanks for being here today. It's

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Speaker 1: nice to be here again. There are implications, of course,

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Speaker 1: because in any area like this, if one country changes

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Speaker 1: a currency regime which is not that different to the

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Speaker 1: general rules of the game out here, then obviously everybody

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Speaker 1: is attacked. And the big theory is that you've get

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Speaker 1: a domino effect, this time in finance rather than the

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Speaker 1: military matters. So Alec, again, you were reporting for Bloomberg

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Speaker 1: in Hong Kong. At the time, it really did seem

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Speaker 1: like the biggest thing ever. Right, Oh it was, and

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Speaker 1: it had been so in the minds of journalists for months,

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Speaker 1: if not years. We've been preparing for this um the

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Speaker 1: most the hippest club in Hong Kong for all those

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Speaker 1: years club marking over. We had invested all sorts of resources,

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Speaker 1: we and the world's press to be there. And maybe

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Speaker 1: it was just because I was born in Hong Kong

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Speaker 1: and my kids were born in Hong Kong. But for

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Speaker 1: me it was a very personal handover, and in some

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Speaker 1: ways because China was taking over peacefully a capitalist society

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Speaker 1: for the very first time in the world, this was happening,

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Speaker 1: a peaceful transfer of power was happening. It seemed like

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Speaker 1: this was the moment for Asia to step up to

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Speaker 1: the world stage and really start leading the world economically

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Speaker 1: and perhaps politically as well. You know, it's one of

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Speaker 1: these situations where an event that has been cut and raised,

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Speaker 1: careographed for such a long time happens, and yet something

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Speaker 1: seemingly small in a very different type of place ends

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Speaker 1: up being the big thing, and that events that had

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Speaker 1: been prepared head full for more than a decade all

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Speaker 1: of a sudden just didn't seem that important. It didn't.

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Speaker 1: And Lee, you were in Bangkok a day was it

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Speaker 1: a day or two days after the handover? It was

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Speaker 1: the next day, actually it was July seven. So um,

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Speaker 1: you know, we were all caught a little bit unprepared.

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Speaker 1: We had seen things kind of melting down rather quickly

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Speaker 1: in Thailand, but the when when the devaluation was announced

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Speaker 1: and they used some tooth phrasing. But when we realized

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Speaker 1: what it was and we sent the first headline, you know,

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Speaker 1: we were just like, Wow, this is not the handover

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Speaker 1: of Hong Kong. This is something big, and this is

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Speaker 1: kind of the meltdown of a single economy. And then

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Speaker 1: not long after that, you know, Dan was working south

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Speaker 1: in Malaysia. I think that you probably felt the jolt

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Speaker 1: coming from Thailand. Well, you know, my parents were visiting

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Speaker 1: me in Kuala Lumpur at the time, and we had

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Speaker 1: watched the handover on TV the night before, so we

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Speaker 1: slept in I'm not going to call from My colleague

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Speaker 1: in the office called me at home and he said,

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Speaker 1: Thailand's just let the bot go and everything's going nuts.

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Speaker 1: Can you come in? And the interesting thing about that

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Speaker 1: at the time was you know, Thailand had been the

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Speaker 1: world's fastest growing economy from something like seven too, so

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Speaker 1: you know that was before China became the world fastest

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Speaker 1: growing economy. And so we saw this tremendous boom going on.

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Speaker 1: Alec was talking about the brand of of nightclubs and everything.

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Speaker 1: At one point, I think Thailand became the world's second

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Speaker 1: largest market for Johnny Walker Black label with and so so,

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Speaker 1: I mean, you know what was the first the US?

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Speaker 1: I think you don't expect things to melt down so

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Speaker 1: quickly because you know, even even to the point where

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Speaker 1: Herod's department store in London actually started putting signs up

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Speaker 1: in time because so many ties had money and we're

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Speaker 1: flying to London to go shopping. That's amazing. So what

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Speaker 1: happened next? I mean, Thailand, the Malaysia Mark Can you

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Speaker 1: have a timeline, right, w don't you just run through

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Speaker 1: that timeline? Let me rattle through it. Actually, let me

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Speaker 1: go back one step, because we've missed what what this

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Speaker 1: is all about, and this is this rapid reversal of

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Speaker 1: capital flows. Money had been flowing into these tiger economies,

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Speaker 1: all of a sudden it went the other way. And

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Speaker 1: it hurt the economy's big time. So July two is

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Speaker 1: where it started. That was where the spark lit in

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Speaker 1: the powder kick blew up. That was the devaluation that

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Speaker 1: Leisa spoke of. Uh. Some days later, the Philippine Pesso

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Speaker 1: was devalued. We didn't see huge while we saw implications,

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Speaker 1: but not to the extent that some of the other

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Speaker 1: economies that followed. Indonesia it widened its trading band soon

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Speaker 1: after then we had it eventually abandoning its trading band,

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Speaker 1: allowing the currency to float freely in August mid August,

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Speaker 1: and predictably it collapsed. Hong Kong stock market was hid.

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Speaker 1: In October, there was speculative attacks on the Hong Kong

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Speaker 1: dollar peg. It endured and lasts still to today. But

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Speaker 1: into October, then South Korea's one began to weaken. We

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Speaker 1: had the I m F loan packages start to unfold

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Speaker 1: from Thailand and Indonesia, but it got very nasty for

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Speaker 1: South Korea. Towards the end of nineteen South Korea having

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Speaker 1: to request I MF aid. The one weakening throughout the

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Speaker 1: IMF in December early December approved the fifty seven billion

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Speaker 1: dollar bailout package. For South Korea, and then into January

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Speaker 1: it really swung back to Indonesia the roup. He was

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Speaker 1: in free fall, then really nose diving. It lost as

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Speaker 1: much as more than of its value. The shelves were bare,

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Speaker 1: and people were stacking up protests through the streets amongst students.

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Speaker 1: And of course, then less than a year after the

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Speaker 1: first onset of that crisis, we had the departure of

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Speaker 1: Sahato after thirty two years in power in May. That's

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Speaker 1: a very good point, and as compelling as some of

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Speaker 1: these economic and financial superlatives are, let's not forget in

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Speaker 1: some instances what resulted from this economic crisis was nothing

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Speaker 1: short of a revolution. Yes, it did force Sahato to

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Speaker 1: stand down. We thought that would inconceivable at one point

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Speaker 1: in Korea, it ultimately meant the election of the first

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Speaker 1: opposition president. Now in Korea, presidency changes hands between parties

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Speaker 1: pretty regularly and no one cares big thing. Back then,

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Speaker 1: an Indonesian out Still after a tumultuous, ranching period, it's

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Speaker 1: regained its place as Southeast Asia's leading economy, the leading

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Speaker 1: economy of action, and it is a vibrant, rambunctious democracy.

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Speaker 1: Who would have thought we thought the Asian white quote

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Speaker 1: unquote was the way they had it right. The West

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Speaker 1: was in decline. And there's some images that spring to

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Speaker 1: mind during that whole period of bailouts lee. You remember

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Speaker 1: the I m F delegation staying in Bangkok. Where were

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Speaker 1: they staying, Oh, they were staying well it was it

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Speaker 1: was actually called the Oriental Hotel at that time, but

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Speaker 1: it was part of the Mandarin Oriental chain and every

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Speaker 1: year the Oriental would win either the best hotel in

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Speaker 1: the world or the second best hotel in the world.

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Speaker 1: And I if I'll give me a moment to tell

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Speaker 1: a story, because the I m F came in and

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Speaker 1: they browbeat governments to slap they're spending, which you know,

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Speaker 1: maybe in retrospect was what they the opposite of what

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Speaker 1: they should have been doing. And I remember going to

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Speaker 1: the the hotel for a press conference and the I

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Speaker 1: m F chief, Michelle camde Sux, who was this powering

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Speaker 1: Sorbone educated economist, and he made it clear that he was,

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Speaker 1: you know, sort of the financial overlord in Asia to

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Speaker 1: help get all these governments together and put their financing

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Speaker 1: back together. And um, you know, the I m F

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Speaker 1: brought in dozens and dozens of senior bankers to to

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Speaker 1: Uh sort of look over the shoulders of the different countries,

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Speaker 1: and they were staying at the Mandarin Oriental in Bangkoks

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Speaker 1: those calm da su came in and Uh I couldn't resist.

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Speaker 1: I had to ask him, I said, why is your

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Speaker 1: entire team of bankers staying at the most expensive hotel

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Speaker 1: in Bangkok? And he kind of got all upset, and

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Speaker 1: you responded that the professional bankers need certain standards of

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Speaker 1: living to complete that. Then you remember a moment too,

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Speaker 1: write it's fair to say the I M F s

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Speaker 1: PR operation in those days was not as sophisticated as

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Speaker 1: it is now. For me, the great moment was watching

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Speaker 1: the same Michelle come to Sue standing over Sahato on

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Speaker 1: national and international television with his arms folded while Sahato

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Speaker 1: sat hunched at a table signing the agreement. Several commentators

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Speaker 1: said at the time, he looks like a Dutch colonial

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Speaker 1: plantation owner. Now it's inconceivable that Christine Legarde would say

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Speaker 1: what was said to Lee and have the body language

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Speaker 1: that transpired in Jakarta inconceivable. So you know, the lenders

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Speaker 1: have changed significantly as well. It's an interesting point, because

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Speaker 1: the whole austerity versus bailout debate, of course, that we

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Speaker 1: saw through the European crisis most recently started back then,

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Speaker 1: back in January, before the worst of the crisis was

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Speaker 1: even upon Indonesia, already Joseph Stiglets, then Chief Economist of

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Speaker 1: the World Bank, was already questioning the sort of Washington

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Speaker 1: consensus view and some of the prescriptions that were being

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Speaker 1: put in place during that time. That's right, and the

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Speaker 1: Bank didn't thank him for it either. Well, it begs

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Speaker 1: the question have we learned anything? Did we learn anything

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Speaker 1: from Asia through the latest crisis in Europe that we've

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Speaker 1: got the world banking community still employing the same prescriptions

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Speaker 1: that didn't really work that well twenty years ago, Well,

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Speaker 1: you know, alec during any global financial crisis that followed.

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Speaker 1: A decade later, there was a very interesting moment at

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Speaker 1: a press conference in Washington where Dominique strauss Can, one

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Speaker 1: of Canvasser's successes at the MF, talked about fiscal expansion

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Speaker 1: being the way to go. The economies in crisis needed

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Speaker 1: to spend much much more, and that really was seen

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Speaker 1: as a Nixon goes to China moment. Dan the I

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Speaker 1: M f I think it was last year published a

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Speaker 1: bit of a mere culper paper which acknowledged some of

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Speaker 1: the mistakes of that period and the certainly you could

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Speaker 1: say the austerity first response has changed, although some people

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Speaker 1: in Greece may argue differently. It's going to say, right,

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Speaker 1: you know something else in retrospect, there were many predictions

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Speaker 1: that China would actually allow its currency to loosen. Instead,

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Speaker 1: it kept the peg that's the yuan's formal tie to

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Speaker 1: the dollar intact throughout this period. And you know, China's

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Speaker 1: economy was much much smaller than than it is now.

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Speaker 1: But looking back, was that the first real sign of

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Speaker 1: China leading, if not the region, then at least the world.

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Speaker 1: It certainly was a move that did help stem the

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Speaker 1: contagion that at certain times there must have felt like

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Speaker 1: it was never ending, the fact that they didn't devalue

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Speaker 1: to maintain their export competitiveness. But remember then China was

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Speaker 1: only just becoming the export powerhouse in it that it

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Speaker 1: is today. But that as we look back twenty years

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Speaker 1: on from the crisis, is the moment where China took

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Speaker 1: a notable global step that contributed to the stability of

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Speaker 1: the world. And to see how just how important that

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Speaker 1: you aren't anchor is to developing markets. You only have

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Speaker 1: to look back now two years to mid where there

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Speaker 1: was that decision to slightly free up. You are not

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Speaker 1: a free flow, just a slight change to the to

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Speaker 1: the mechanism. It only moved one point seven percent on

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Speaker 1: the day. Remember in mid and global markets went haywire.

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Speaker 1: So that in itself shows just how important that you

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Speaker 1: aren't anchor is today. And it all started twenty years earlier.

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Speaker 1: If you want an indication of where China is today,

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Speaker 1: it was just this month that MSCI put the domestic

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Speaker 1: Chinese stock market in the indexes. The share market was

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Speaker 1: now considered to be one of the world's biggest stock markets. Lee,

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Speaker 1: I'm wondering if this episode that we're discussing here is

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Speaker 1: also a lesson and a lesson we all needed in

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Speaker 1: retrospect about the impermanence of perceptions and of grand modeling.

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Speaker 1: You know, we said at the start of this program,

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Speaker 1: this is very much the era of the Asian Tiger,

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Speaker 1: the Asian way. They had it all figured out. The

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Speaker 1: West was in decline. By the end of the tables

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Speaker 1: were turned and the West was again in the ascendancy.

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Speaker 1: And that's highly arguable again today, is that what's really

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Speaker 1: happening here? This was about the death of perception. Well,

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Speaker 1: I don't think that, Uh, it's really about the perception.

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Speaker 1: I think that it's more about history repeating itself. I mean, uh,

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Speaker 1: was a crisis two thousand and eight was it was

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Speaker 1: a crisis we if you want to look at Greece

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Speaker 1: and sort of an ongoing crisis, I don't I think

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Speaker 1: that economically, no matter what we have in place, Uh,

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Speaker 1: we're we're going to see some of these crises happen,

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Speaker 1: and once they happen, there's a contagion to it. Should

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Speaker 1: we also be careful about constructing grand paradigms about the

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Speaker 1: era in which we live. I certainly think that that's

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Speaker 1: a that's a case. I mean, that's especially when you're

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Speaker 1: living through it. It's hard to have a grand perception

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Speaker 1: of it. Maybe that's what you know, for historians can

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Speaker 1: do fifty years from now or fifty years or a

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Speaker 1: hundred years from now. But it's awfully, awfully hard. And

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Speaker 1: and you know, we we were all on the firing

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Speaker 1: line as journalists when things were happening so fast, and

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Speaker 1: now things happen even faster because back then there really

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Speaker 1: was very little Internet. There was very little email traffic

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Speaker 1: that went on. There was no Twitter or anything. So um,

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Speaker 1: you know, when you're at ground zero of an event happening,

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Speaker 1: it's very hard to have a wide perspective. Benchmark will

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Speaker 1: be back next week. Until then, you can find us

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Speaker 1: on the Bloomberg terminal, Bloomberg dot com, our Bloomberg app,

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Speaker 1: as well as Apple Podcasts, pocket Cast and stitch. Why

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Speaker 1: are there Take a minute to rate and review the show?

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Speaker 1: Some more listeners can find us and let us know

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Speaker 1: what you thought at the show. You can follow me

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Speaker 1: on Twitter at Moss Underscore, Echo, Alec a d b

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Speaker 1: mcse and Mal Malcolm Scott eight Lee. Oh I'm a

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Speaker 1: old world Adam, I don't use Twitter. Talk about the

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Speaker 1: absence of a new paradigm. Benchmark is produced by Sarah Addison.

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Speaker 1: The head of Bloomberg Podcasts is the same Alec McCabe.

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Speaker 1: Thanks for listening. Next time, h