Inside Out | The next financial crisis is coming, I just don’t know when

Twenty years ago this weekend I sat in the newly-minted auditorium of the Hong Kong Convention Centre in Wan Chai as Hong Kong played host to the World Bank and IMF meetings. I spectated first-hand on the complacent myopia of the world’s smartest and most powerful financial sector minds.

Just three months earlier, and after the most frantic construction efforts to meet immovable deadline pressure, the Convention Centre had opened its doors to host the historic ceremonies marking the transfer of sovereignty from Britain to China. It was a time of colossal hubris and optimism in Hong Kong, despite the world’s scepticism over Hong Kong’s future under Beijing’s rule.

The booming stock and property markets gave Hong Kong leaders a “we-told-you-so” swagger as the dire predictions of the world’s media had come to nothing. Joseph Yam, then chief executive of Hong Kong’s Monetary Authority, stood before the world’s finance sector leaders and boasted: “Things are going well here in Hong Kong.”

The one blot on the upbeat mood was a little local difficulty in Southeast Asia, with the crash of the Thai baht the day after Hong Kong’s transfer of sovereignty, and Malaysia’s Prime Minister Mahathir Mohamad fulminating against “rogue speculator” George Soros, claiming he had spearheaded an attack on the Malaysian ringgit. There were anxieties about the foreign currency debt exposures in South Korea and Indonesia, but all of this seemed containable.

The Group of Ten ministers’ communique said: “Given the financial market turmoil in Southeast Asia, which has many of its roots in weak financial systems (we) stress the importance of concrete and comprehensive implementation of a concerted strategy which… creates a macroeconomic and institutional setting favourable to sound credit cultures, (promotes) effective stakeholder oversight and good governance, (and institutes) sound regulatory and supervisory arrangements that support… market discipline.” If only it had been that easy.

Less than a month later, the Hong Kong stock market fell more than 10 per cent, and bank lending rates were hoisted to 300 per cent to fend off speculative attacks. The Dow fell 23 per cent in its wake. The carnage of the following 24 months is now history, but as the financial champions of the universe gathered in the Convention Centre, almost nothing was anticipated.