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¶ … Asian Financial Crisis. This offers everyone with specific insight about those factors leading up to these events and how they transformed the economy going forward. The combination of them helps to place what happened into perspective. (Das, 1999)

The economies of Asia became interconnected from increased amounts of globalization and more trade with developed nations (i.e. The United States, Europe, Canada and Australia). This resulted in these countries experiencing above average rates of economic growth. The problem was that many of the practices of various governments led to excessive amounts of speculation. At the same time, many emerging economies were growing at above average historical rates. This led to attitudes that the region will not experience slowdowns anytime soon. (Das, 1999)

In the summer of 1997, a chain of events occurred. That caused it to go from extreme boom and bust cycles. It started with the Thai baht going through unprecedented declines. This was sparked by fears that the economy was slowing much more than expected which caused a massive selloff. The primary reasons for these events were a sharp decline in the price of semi-conductors. This made it harder for manufacturers to cheaply produce and import their products to developed markets. (Das, 1999)

At first, these concerns were largely ignored. This is because the Chinese remnimbi and the Japanese yen had experienced declines in the early to mid 1990s from both governments devaluing them. A similar effect occurred as semi-conductor prices fell and then eventually recovered. This led to the belief that these events were something short-term that would eventually pass. (Das, 1999)

Moreover, Latin America had experienced similar issues and was able to overcome key challenges unscathed in the 1980s. The result is many traders and investors felt that there would not be an eventual slowdown in the region. This caused them to take on excessive amounts of risk. These views set the stage for large declines, with no one believing this could happen until it was too late. (Das, 1999)

The situation in Thailand exacerbated these problems by causing the economy to slow much faster than expected. Evidence of this can be seen with insights from Das (1999) who said that Thailand had an effect immediately on: Malaysia, Indonesia, South Korea and Singapore. Once this happened, the economies of China, Japan and Hong Kong were impacted by the slowdown. The result is the situation in Thailand, spread from one country to the next within a matter of three months. Globalization and the liberalization of trade practices increased the scope and pace of the crisis. (Das, 1999)

The main reason why semi-conductor prices were down is because of a decline in demand for consumer electronics between 1995 and 1997. This caused exports from these countries to fall from 21.6% to 4.3%. No one was paying attention to the effect this was having on their economies and the industry. (Das, 1999)

As a result, these attitudes created a situation where several different factors came together at the same time to create the Asian Financial Crisis of 1997. The most notable include: the belief that the economy would not slow based upon previous successes, a vulnerable financial sector and structural flaws in government policies / regulation. These variables created a situation where there was no accountability and made it difficult for central bankers to understand what was happening. (Das, 1999)

The past successes of the economy allowed many people to believe that any kind of effects from the slowdown in semi-conductors was only temporary. This is because these countries were experiencing tremendous amounts of growth. For instance, in 1996 South Korea realized 10% increases in GDP. While Singapore; seen growth coming in at 9%. The other counties in the region were going through similar events and benefited from the increased amounts of demand. (Das, 1999)

Once the slowdown in electronics became more severe, this created a situation where no one believed that this would impact them. Instead, they felt that these kinds of issues would pass and the economy will continue to experience similar trends that were seen earlier. This resulted in many people taking excessive amounts of risk to benefit from these improvements. The problem was that when the Thai currency started to decline, nobody took it seriously and they failed to understand how this would affect them. It was not until much later, when they realized the severity of these events and the impacts they are having. (Das, 1999)

The financial sector became vulnerable from the excessive amounts of risk taking. That occurred among various banks, brokerage firms, retirement funds and insurance companies. This meant that they had no way of protecting themselves against sudden shocks to the system. In 1997, these risks had a direct impact on their liquidity position. As these assets began to fall dramatically and no one was able to accurately value them. (Das, 1999)

This made it difficult for these firms to cover the expenses from their day-to-day operations with the capital markets freezing up from fears about what will happen next. Once this was realized, it was too late to liquidate the position and to more accurately value them in order to restructure their balance sheets (using: marked to market accounting principles). It is at this point, when the situation became so bad, that it had the potential of spreading from Asia to the developed economies in November 1997. (Das, 1999)

The structural flaws in government regulation and oversight were the direct result of the inability of regulators to oversee the activities of financial firms. This is because corruption was rampant inside many of these agencies and they did not have the power to prevent them from engaging in excessive amounts of risk taking. (Das, 1999)