Hot money and cold comfort Global capital movement and financial crises in emerging economies

Resumen

IN THE 19 th Century, when the United States was a new nation, it had an unregulated free market system for banking and credit. Any individual with a reputation for honesty among his neighbors could open a bank, accept deposits, make loans, and issue script that could be used as money. This system fueled innovation by creating markets in which resources could flow to their most roductive use, and the U.S. economy grew rapidly. However, the system was intrinsically unstable. Any natural event, loan whose quality was questioned, or even rumor could set off a run of withdrawals by depositors that the bank had insufficient liquidity to satisfy, leading the bank to fail. This could happen even in circumstances where the fundamentals of the bank were sound, with solid prospects for eventual recovery of loan principal and interest that would cover all deposits.
Further, these panics and the resulting bank failures spread havoc, ruining depositors and businesses who lost their lines of credit. The failures often cascaded into national panics that fed violent business cycles with frequent contractions. Not only did these financial stutters in the system slow the pace of economic growth, but they placed a heavy toll on the lives of individuals.