International Financial Crises Increasingly Take Priority Over Most Traditional Security and Foreign Policy Problems, Concludes New Council on Foreign Relations Book
January 8, 2003 11:32 am (EST)
- News Releases
September 7, 2001 - What if you took seventy-five of the most experienced professionals in the fields of finance, economics, foreign policy, and national security and confronted them with two dozen policy problems triggered by a massive contraction in the stock markets? That was the premise of an unprecedented simulation conducted by the Council on Foreign Relations, and the subject of Council Fellow Roger Kubarych’s new book Stress Testing the System: Simulating the GlobalConsequences of the Next Financial Crisis. This book captures the way in which the simulation was organized and played out at a time when the U.S. stood at the pinnacle of the 1990s high-tech boom.
The major conclusion that flows from the work of Kubarych and his colleagues is this: when there is a shock to the international financial system, U.S. policymakers will deal with the financial crisis first, even when there are other foreign policy and security concerns at stake. Because the strength of the U.S. economy is so critical to global prosperity and to the financial health and political stability of most nations, without first restoring stability in the markets and reducing the potential for subsequent negative economic consequences, policies to address other problems will be less effective.
More on:
This hypothetical crisis helps us better understand the ripple effects of recent financial troubles. Crises reverberated through Mexico in 1994-95, Asia in 1997-98, Russia and Brazil in 1998, and, just recently, Argentina and Turkey. In every case, what began as financial traumas soon broadened out to infect the economies, and almost always the political systems, of these countries. Even the United States, largely spared financial trauma during the past ten years, is beleaguered by the precipitous drop in the high-tech equity sector, and people are uneasy about the U.S. economic outlook.
The Council’s simulation was an exploration of financial vulnerabilities and their connections with broader economic, foreign policy, and national security considerations. It assumes that economic and market forces will play an increasing role in the setting of policy objectives, priorities, strategies, and responses. The aim was to challenge a group of experts to work through the options and constraints facing the U.S. government in the aftermath of an unforeseen financial crisis beginning in the United States and spreading throughout Latin America, Europe, Asia, and the rest of the world.
This book is more than a revealing account of the lessons and implications of time - and crisis-pressured decision making: it is an instructive guide for how best to organize business and financial "war-gaming." Kubarych provides an insider’s look at the collaboration among great minds that led to a successfully crafted scenario that was played out with real-world accuracy.
Stress Testing the System: Simulating the Global Consequences of the Next Financial Crisis is a Council on Foreign Relations book.
SIMULATION PARTICIPANTS
More on:
Elizabeth Allen
Zurich Scudder Investments
Diego Arria
The Columbus Group
Mario L. Baeza
TCW/Latin America Partners, L.L.C.
Brandon Becker
Wilmer, Cutler & Pickering
Nicholas F. Beim
Matrix Partners
Richard K. Betts
Council on Foreign Relations
Kathy Finn Bloomgarden
Ruder Finn
Nicholas A. Bratt
Zurich Scudder Investments
Deborah K. Burand
Finca International
Robert Carswell
Shearman & Sterling
Derrick Cephas
Wickersham & Taft
William Clark
The Japan Society
Sam Y. Cross
Columbia University
Jack David
Hans W. Decker
Columbia University School of International & Public Affairs
Robert E. Denham
Munger, Tolles & Olson
David A. Duffié
USN Military Fellow 1999-2000
Simulation Assistant Project Director
Thomas R. Donahue
Work in America Institute
Jessica P. Einhorn
Clark & Weinstock
Hani K. Findakly
Potomac Capital
Peter R. Fisher
U.S. Department of the Treasury
Benjamin M. Friedman
Harvard University
Richard N. Gardner
Morgan Lewis & Bockius
Leslie H. Gelb
Council on Foreign Relations
Richard K. Goeltz
American Express Company
David F. Gordon
National Intelligence Council
Martin J. Gross
Sandalwood Securities, Inc.
David D. Hale
Zurich Financial Services
Charles B. Heck
Trilateral Commission
Paul Heer
John G. Heimann
Merrill Lynch & Co., Inc.
Robert Helander
Kaye, Scholer, Fierman, Hays & Handler
Andrew Hilton
The Centre for the Study of Financial Innovation
George Roberts Hoguet
State Street Global Advisors
Gary N. Horlick
O’Melveny & Myers
Robert D. Hormats
Goldman, Sachs & Company
Yves-Andre Istel
Rothschild North America, Inc.
Jerome Jacobson
Economic Studies, Inc.
Merit E. Janow
Columbia University
James R. Jones
Manatt, Phelps & Phillips
David Kellogg
Council on Foreign Relations
Brian Kenny
W.R. Grace & Co.
Andrew B. Kim
Sit/Kim International Investment Associates, Inc.
Lawrence J. Korb
Council on Foreign Relations
Roger M. Kubarych
Council on Foreign Relations
Simulation Project Director
Edward A. Kwalwasser
New York Stock Exchange
Roger S. Leeds
Paul H. Nitze School of Advanced International Studies
John A. Levin
John A. Levin & Co., Inc.
Marc Levinson
J.P. Morgan Chase & Co.
Bevis Longstreth
Debevoise & Plimpton
Omotunde A.J. Mahoney
International Asset Transactions
Martin Mayer
The Brookings Institution
Walter Russell Mead
Council on Foreign Relations
Irene W. Meister
Irene Meister & Associates
Nancy S. Newcomb
Citigroup
Seamus O’Cleireacain
Columbia University
Scott E. Pardee
Middlebury College
Ernest T. Patrikis
American International Group, Inc.
Michael P. Peters
Council on Foreign Relations
Peter G. Peterson
The Blackstone Group
Gerald A. Pollack
Richard Ravitch
Ravitch, Rice & Co.
Gideon Rose
Foreign Affairs
Hal Scott
Harvard Law School
David Shirreff
Euromoney
Robert Solomon
The Brookings Institution
Maurice Sonnenberg
Benn Steil
Council on Foreign Relations
Gordon C. Stewart
Insurance Information Institute
Bruce Stokes
Council on Foreign Relations
Cynthia A. Tindell
Credit Suisse First Boston Corporation
Bernard E. Trainor
Council on Foreign Relations
Edward E. Waitzer
Tatsuo Watanabe
Ministry of Finance
John C. Whitehead
AEA Investors Inc.
Melvin F. Williams
Salomon Smith Barney Inc.
Alan Wm. Wolff
Dewey Ballantine
R. James Woolsey
Shea & Gardner
Guy Patrick Wyser-Pratte
Wyser-Pratte Management Co., Inc.
Fareed Zakaria
Newsweek International