The City of London in the Asian Crisis

In this paper, we explore the path and interpretation of the Asian financial crisis (1997-1999). Much of the literature on the crisis has stressed issues of liquidity and market stability, the problems of determining cause and effect, and the role of institutions in amplifying or ameliorating the contagious effects of the crisis. By contrast, this paper seeks to understand the crisis through the eyes of the City of London. Relying upon material provided by The Financial Times and its' leading columnist Barry Riley, we construct an index of pessimism to chart the dominant City of London interpretation of the path of the crisis. This index is set against data on the actual performance of the Hong Kong, and Tokyo, London and New York stock markets over the same time period. Our goal is not to embarrass our representative columnist, showing how and why he was wrong about the consequences of the crisis for global financial stability. We have the luxury of retrospectively reconstructing the actual path of the crisis whereas Riley had to respond to specific events in a chain of apparently related events. Rather, our goal is to explain the construction of the dominant pessimistic interpretation of the path of the crisis, placing the City of London in the context of global markets (in time, between Tokyo and New York). In the penultimate section of the paper we report on an interview with Riley about the results of our analysis, emphasising the apparent homogeneity of information and opinion in the City of London as opposed to New York. The conclusion focuses upon the implications of this argument for the study of discontinuities between markets, and the future of financial centres