The Southeast Asia of the 1980s and 90s was incredibly exhilarating. Following the "Four Asian Tigers," the "Four Little Tigers" emerged: Thailand, the Philippines, Malaysia, and Indonesia. Together, they formed what was known as the Asian miracle, and it seemed as if everyone had found the "path to development." The miracle invigorated the people's spirit, preparing them for a grand endeavor.

However, by the end of the 90s, it seemed as if everything had reverted to its original state overnight. Stock markets plummeted, currencies devalued, and years of accumulation turned to ashes. How did all of this happen?

Rise

Asian countries have large populations and cheap human resources, and they can pollute at will. By engaging in some subcontracting work to earn some money, these Asian poor countries were able to make a living, which the rich countries of Europe and America disdained to do. Therefore, these Southeast Asian countries took on industries such as textiles, leather goods, and general mechanical parts, which Europe, America, and Japan were not very willing to engage in. Although the profits were meager, for these extremely poor countries, due to the low cost of labor and land, the return on investment was still very high, and Western investors were also willing to invest in Asia.

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At this time, a large amount of Western speculative capital poured into Asia, investing in projects and creating a bustling scene. This is the prosperous situation mentioned at the beginning.

Hidden Crisis

Countries like Japan, which have been mixing with Europe and America for more than a hundred years, are very familiar with the Western way of doing things. They know that the influx of hot money from Western countries into a country is not to build roads and bridges for your people, nor is it to enable sustainable development for the people of the third world. They pursue quick profits and play with whatever makes money. Therefore, Japan has long restricted the scope of foreign investment in Japan, set access thresholds, and many fields do not allow foreign investment at all. Foreign capital in Japan can only engage in production and cannot mess around with other things, restricting foreign capital from making quick money. Later, South Korea and a certain major country also had a lot of experience in this regard.

So at that time, European and American banks were very dissatisfied with the Japanese and South Korean governments, saying that the governments of Japan and South Korea were very uncooperative with foreign banks. What is more ironic is that it was later found that all the countries that European and American banks enthusiastically praised were no exception and were targeted by the West, such as Argentina, Mexico, Russia, and so on. This is really a place with many tricks, and there is no trust between people at all.However, those Southeast Asian countries didn't understand this, and were deceived by liberal economists. In the 1990s, wasn't the Soviet Union already collapsing? A group of economists gathered in Washington and formed something called the "Washington Consensus," which everyone is very familiar with. The core is what our country's economists like to say the most: small government, less regulation, and more freedom.

At that time, everyone believed this deeply, even the Soviet Union had started liberalization, and Southeast Asian countries were naturally very impulsive, feeling that they had found the secret to development.

But once you open your doors wide, you must be mentally prepared for the robbers to come. Most liberals assume there are no robbers, but in fact, not only are there robbers in civilized society, but they also understand philosophy, and they are also elegantly dressed in suits and ties, eating people with knives and forks.

The trick is probably like this: suppose you are a speculator, you take a million US dollars, go and exchange it for Thai baht, for example, you get 10 million, then buy a piece of land, build buildings and houses on it, speculate and sell to the local people, and make a profit of 10 million, so it becomes 20 million, and then go to the Bank of Thailand to exchange it for two million US dollars and run away, Thailand has lost a million in foreign exchange, and the money earned by the people working hard to produce socks is robbed.

Or there are many hot money directly does not build a house, directly buy a piece of commercial real estate, speculate and sell it, and cash out and leave.

And this operation was indeed very popular at the beginning, because international hot money all went to Asia to speculate on assets in unguarded countries, and as soon as one hot money left, another came, giving people the impression that foreign capital had not left, but was actually like a revolving lantern.

At the beginning, the drawbacks were not obvious, the Southeast Asian stock market and real estate were both at new highs, and the people of Southeast Asia were naturally happy, and the international community praised several Southeast Asian countries, praising them for doing well, and those countries were also confident, and occasionally someone saw clearly, feeling that this was unsustainable, was looking for death, but was immediately scolded by colleagues. By 1997, the Asian bubble had become very, very large.Plummeting Prices

Misfortunes never come singly. The bubble was significant, but the real economy had problems. Asian countries generally had insufficient domestic demand and had to rely on exports. However, around 1995, exports also began to weaken, and the overall situation had become very dangerous. At this time, Soros took the stage.

The New York Times had an article specifically about Soros, which analyzed Soros's investment philosophy and investment concepts, and summarized the following points:

1. As a capitalist shark, he is precisely because he realized the systemic flaws of laissez-faire capitalism itself, and was able to make money from these flaws. 2. What are the flaws of capitalism? It's that every few years, people will suddenly chase after something, then go crazy together, shouting "XX will always rise," and then keep raising prices until the system collapses in the end. This crazy logic can refer to my article "The Old Story of the Japanese Real Estate Bubble: Selling the land under the palace can buy the whole of Canada." 3. Since most people will be foolish, if you are not foolish, you can identify this "collective foolishness," and you can make money!

This is also Soros's often-mentioned "reflexivity theory," which, in simple terms, is to look for black swans.

So in 1997, when the Southeast Asian economy was booming, Soros realized that the system had bred a large amount of risk, "the wind is rising, and there is a smell of blood in the wind."

Soros's thinking is very simple, which is what we discussed in yesterday's article:

Short selling US stocks, shorting the British pound, how does the black swan player Soros make money?The operation mentioned in the text involves borrowing the currency of a country, then dumping it on the foreign exchange market in exchange for gold. You can think of currency as just like cabbage; it is also a commodity. If cabbage cannot be sold, its value will depreciate. Then Soros and his team would exchange a portion of the gold for the now-depreciated cabbage to pay back the loan, with the difference being their profit.

To prevent devaluation, the Thai government would use foreign exchange to intervene. Initially, they tried to stabilize the exchange rate with the logic of "intervening as much as the other side dumps." However, they soon found that the onslaught of baht being dumped on Thailand was overwhelming, and their foreign exchange reserves were quickly depleted. Once you run out of foreign exchange, and the other side continues to dump baht, you can no longer intervene. They had to quickly announce the abandonment of the fixed exchange rate, and then the baht depreciated by 60% like cabbage. These differences in value are the profits for Soros and his team.

Speaking of this, some astute readers must have realized that if Soros and his team couldn't borrow so many baht, there would be no problem, right?

Yes, this is also a point of reflection on the Southeast Asian financial crisis over the years. As long as a firewall is set up, speculators cannot freely borrow so much money, which can curb the flood. For example, in 2016, Hong Kong, China, fought a battle to defend the RMB exchange rate. The idea was to withdraw all the RMB in circulation from the market. Speculators could not borrow money, and they could not continue to dump RMB, which was equivalent to running out of ammunition and quickly fading away.

However, at that time, Thailand had no firewall and allowed international speculators to slaughter at will. Decades of accumulation in Thailand turned to ashes, and the hard work of the people day and night became prey in the pockets of international speculators. The violent shock of the Thai financial system quickly spread to the real economy. For example, some enterprises settled in US dollars, which were originally normal in income and expenditure, but now the currency has depreciated, and the US dollar debt has doubled, leading to bankruptcy.

Financial speculators have always been creatures like vultures. When they smell blood, they will come together. After Soros made Thailand bleed for the first time, the world's imagination was released. Since Thailand is so weak, what about other countries? Then people began to doubt whether the previously mentioned "Asian miracle" is just a "story," a group imagination? Or is it just an illusion?

This kind of apocalyptic disillusionment spread everywhere, and Europe and the United States withdrew their investments from Asia on a large scale, causing the stock market, foreign exchange market, and real estate market to plummet.Subsequently, one country after another fell, Malaysia, Indonesia, every market was targeted, especially Indonesia, the unfortunate country whose currency devalued by 80%. It felt like today you could still buy an Apple phone with 7,000 yuan, but tomorrow, after devaluation, you could only afford an MP3. Moreover, South Korea was also severely hit, and since then, more than half of Samsung's shares have been taken by Americans, and this situation has continued to this day.

Countries trampled on each other internally, everyone was eager to sell off their assets, and soon it spread to Hong Kong, with the same routine. They borrowed Hong Kong dollars from the market and then sold them, and the same went for stocks, which were also massively sold off. If there were buyers, the value could be maintained, but if there were no buyers, it was doomed.

At first, the Hong Kong government showed a very tough stance, taking in as much as the short sellers sold. Moreover, to crack down on short sellers and prevent capital outflow, the Hong Kong government raised interest rates on a large scale, indirectly destroying Hong Kong's real estate. As interest rates rose, monthly payments increased, and Hong Kong's housing prices were halved within a year in 1998. However, Hong Kong people were also quite impressive. For example, if a house was bought for 4 million, and now it's only worth 2 million, Hong Kong people still continue to repay the mortgage and did not experience a large-scale default.

Later, as everyone knows, the short-selling wave formed by international speculators, like a 50-meter tsunami, rushed towards Hong Kong. Mainland China urgently intervened, using foreign exchange to take Hong Kong dollars, which was equivalent to erecting a 60-meter dam in front of Hong Kong to block the most fierce wave. After that, the international speculators' ammunition was almost exhausted, and they felt that it was not worth it to tough it out, especially when there were so many good bones to gnaw on, and then they went to trouble others.

Speaking of this, everyone also understands that the so-called financial war is very complicated, but ordinary people can't play it. In short, it's just a matter of ammunition consumption, with wealthy commercial groups and countries competing against each other, and whoever is the first to be empty dies.

Reflection

At the end of the article, let's talk about the lessons from the Southeast Asian financial crisis:

First of all, even if the blogger doesn't say it, everyone has seen it. The system needs to set up a firewall. Your system cannot assume that everyone in the market is a good person, nor can it assume that everyone is a living Lei Feng. There are predatory sharks and scavenging crows in the market, who may attack your weaknesses at any time and leave you with nothing but bones. Of course, we won't say that writing articles is to criticize the moral corruption of sharks and crows. We emphasize "self-responsibility." If you are attacked by a shark, the most important thing to think about is why you put yourself in that unfortunate position and how to avoid such problems.Secondly, let me share an investment philosophy. I once read a biography of a well-known speculator, which was a thick volume, but the core idea was already stated in the preface: money has a characteristic of concentrating in the hands of a few people for two main reasons. On one hand, a few people are indeed capable, and on the other hand, there is information asymmetry. Some people will exploit the expectations of the majority to create black swan events and then reap the profits. He calls this "enormous profits drive people to work," and you just need to stand on the side of the trend, without paying attention to how others work.

That's the general idea. So, every time he has an idea, he always writes it down on paper and then explores whether the opposite of this idea is also valid, looking for other possibilities. This is because your first reaction is also someone else's first reaction, and this concept is called the "harvested concept." His win rate is not very high, but he always trades small investments for huge returns, and eventually, he made it big.

Finally, just like individuals, countries that want to make quick money are often easily harvested by quick money.