The Volatility Machine: Emerging Economics and the Threat of Financial Collapse

Hardcover | May 15, 2001

byMichael Pettis

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This book presents a radically different argument for what has caused, and likely will continue to cause, the collapse of emerging market economies. Pettis combines the insights of economic history, economic theory, and finance theory into a comprehensive model for understanding sovereignliability management and the causes of financial crises. He examines recent financial crises in emerging market countries along with the history of international lending since the 1820s to argue that the process of international lending is driven primarily by external events and not by localpolitics and/or economic policies. He draws out the corporate finance implications of this approach to argue that most of the current analyses of the recent financial crises suffered by Latin America, Asia, and Russia have largely missed the point. He then develops a sovereign finance model,analogous to corporate finance, to understand the capital structure needs of emerging market countries. Using this model, he finally puts into perspective the recent crises, a new sovereign liability management theory, the implications of the model for sovereign debt restructurings, and the newfinancial architecture. Bridging the gap between finance specialists and traders, on the one hand, and economists and policy-makers on the other, The Volatility Machine is critical reading for anyone interested in where the international economy is going over the next several years.

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This book presents a radically different argument for what has caused, and likely will continue to cause, the collapse of emerging market economies. Pettis combines the insights of economic history, economic theory, and finance theory into a comprehensive model for understanding sovereignliability management and the causes of financial...

Michael Pettis is a Managing Director at Bear Stearns, a New York investment bank and an adjunct professor at Columbia University where he teaches courses in international finance. He has been involved in emerging markets, both as an investment banker and as a sovereign adviser, since 1987. In addition, he has written extensively on t...
Format:HardcoverDimensions:272 pages, 5.98 × 9.09 × 0.98 inPublished:May 15, 2001Publisher:Oxford University PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0195143302

ISBN - 13:9780195143300

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Table of Contents

IntroductionPart I. The Structure of Financial Crises1. Capital Structure and Policy Collapse: The Financial Crisis of the Late 1990s2. Market Structure IssuesPart II. Global Liquidity and Capital Flows3. Why Does Ric-Country Capital Flow to Poor Countries?4. 180 Years of Liquidity Expansion and International Lending5. The Contraction of International LendingPart III. The Corporate Finance of Crises6. The Theory of Capital Structure and Financial Risk7. The Capital Structure Trap8. Toward a Theory of Sovereign Capital Structure Management9. Debt Restructurings within a Corporate Finance FrameworkPart IV. Conclusion10. Conclusion: The New Financial ArchitectureAppendix: The Option Characteristics of Sovereign DebtBibliographyIndex