Why don't we learn from financial crises? As Asian currencies fall and crisis strikes, we seem to be making the same mistakes made in the '90s.

The rupiah is falling! Head for the hills!

On second thought, keep calm and carry on.


I don't think so, for reasons I'll explain in a minute. But current events do bring back memories -- and they are, in particular, a reminder of how little we learned from that crisis 16 years ago. We didn't reform the financial industry -- on the contrary, deregulation went full speed ahead. Nor did we learn the right lessons about how to respond when crisis strikes. In fact, not only have we been making many of the same mistakes this time around, in important ways we're actually doing much worse now than we did then.



Fortunately, the bad times didn't last all that long. The very weakness of these countries' currencies made their exports highly competitive, and soon all of them -- even Indonesia, which was hit worst -- were experiencing strong export-led recoveries.

Still, the crisis should have been seen as an object lesson in the instability of a deregulated financial system. Instead, Asia's recovery led to an excessive showing of self-congratulation on the part of Western officials, exemplified by the famous 1999 Time magazine cover -- showing Alan Greenspan, then the Fed chairman; Robert Rubin, then the Treasury secretary; and Lawrence Summers, then the deputy Treasury secretary -- with the headline "The Committee to Save the World." The message was, don't worry, we've got these things under control. Eight years later, we learned just how misplaced that confidence was.

Indeed, as I mentioned, we're actually doing much worse this time around. Consider, for example, the worst-case nation during each crisis: Indonesia then, Greece now.

Indonesia's slump, which saw the economy contract 13 percent in 1998, was a terrible thing. But a solid recovery was under way by 2000. By 2003, Indonesia's economy had passed its pre-crisis peak; as of last year, it was 72 percent larger than it was in 1997.




What about China? Well, as I recently explained, I'm very worried, but for entirely different reasons, mostly unrelated to events in the rest of the world.
