When financial crises occur, economic theory maintains that national economies need a lender of last resort to stabilize markets. In today's financial system, crises are rarely confined to one country-they often go global. Yet, there is no formal international lender of last resort (ILLR) to perform this function for the world economy. Conventional wisdom says that the International Monetary Fund (IMF) has emerged as the de facto ILLR. However, that premise is incomplete.
Brother, Can You Spare a Billion? explores how the United States has for decades regularly complemented the Fund's ILLR role by selectively providing billions of dollars in emergency loans to foreign economies in crisis. Why would U.S. policymakers ever put national financial resources at risk to "bail out" foreign governments and citizens to whom they are not beholden-especially when the IMF was created for this purpose? Daniel McDowell argues the United States has been compelled to provide such rescues unilaterally when it believes a multilateral response via the IMF is either too slow or too small to protect vital U.S. economic and financial interests. Interestingly, it does this despite the many advantages to allowing the IMF to take the lead. The United States never wanted to go into the international lending business, but in response to the IMF's chronic weaknesses, it intervenes to manage international economic crises before they can affect America's domestic economy.
Through a combination of historical case studies and statistical analysis, McDowell uncovers the defensive motives behind U.S. decisions to provide global liquidity beginning in the 1960s, moving through international debt crises of the 1980s and emerging market currency crises of the 1990s, and extending up to the 2008 global financial crisis. Brother, Can You Spare a Billion? goes beyond conventional wisdom to paint a complete picture of how international financial crises have been managed and highlights the unique role that the United States has played in stabilizing the world economy in troubled times.
Table of Figures
Table of Tables
Preface
List of Abbreviations
CHAPTER 1 - Introduction
1. THE PUZZLE
2. THE ARGUMENT
3. PLAN OF THE BOOK and FINDINGS
CHAPTER 2 - The ILLR in Theory and Practice
1. AN INTERNATIONAL LLR: A BRIEF HISTORY OF A CONCEPT
1.1 The ILLR and the Hegemon
1.2 The ILLR and the IMF
2. THE IMF'S LIMITATIONS AS ILLR
2.1. The Problem of Unresponsiveness
2.2. The Problem of Resource Insufficiency
3. THE UNITED STATES' ILLR MECHANISMS
3.1. The Mechanics of Currency Swaps
3.2. Speed and Independence
3.3. Lending Capacity
3.4. Division of Labor
4. CONCLUSIONS
CHAPTER 3 - The United States Invents its Own ILLR, 1961-1962
1. MORE DOLLARS, MORE PROBLEMS
1.1 From Dollar Gap to Dollar Glut
1.2. Two Threats: The "Gold Drain" and Speculation
2. IN SEARCH OF AN ILLR
2.1. The General Arrangements to Borrow
3. AN ALTERNATIVE ILLR: CENTRAL BANK CURRENCY SWAPS
3.1. The Fed's Novel Idea
3.2. Who Needs the IMF?
3.3. How the Swap Lines Protected U.S. Interests
3.4. Why did Europe Cooperate?
4. CONCLUSIONS
CHAPTER 4 - The Exchange Stabilization Fund and the IMF in the 1980s and 1990s
1. THE EXCHANGE STABILIZATION FUND
2. 1980s: GLOBAL BANKING AND THE DEBT CRISIS
2.1. The IMF's "Concerted Lending" Strategy and the Problem of Unresponsiveness
2.2. The ESF and "Bridge Loans": Correcting for the Problem of IMF Unresponsiveness
3. 1990s: PORTFOLIO FLOWS AND CAPITAL ACCOUNT CRISES
3.1. Capital Account Crises and IMF Resource Insufficiency
3.2. The ESF and Supplemental Loans: Correcting for the Problem of IMF Resource Insufficiency
4. CONCLUSIONS
CHAPTER 5 - Who's In, Who's Out, and Why? Selecting Whom to Bailout, 1983-1999
1. U.S. FINANCIAL INTERESTS AND ESF BAILOUT SELECTION
2. AN EMPIRICAL MODEL OF ESF BAILOUT SELECTION
3. RESULTS
4. CONCLUSIONS
CHAPTER 6 - U.S. International Bailouts in the 1980s and 1990s
1. CASE SELECTION
2. THE CASES
2.1. Mexico, Brazil and Argentina, 1982-1983
2.2. Argentina, 1984
2.3. Poland, 1989
2.4. Mexico, 1995
2.5. Thailand, 1997
2.6. Indonesia and South Korea, 1997
2.7. Declining Use: The ESF is Put Out to Pasture
3. CONCLUSIONS
CHAPTER 7 - The United States as ILLR during the Great Panic of 2008-2009
1. BACKGROUND: "A NOVEL ASPECT" OF THE GREAT PANIC OF 2008
2. U.S. FINANCIAL INTERESTS AND THE FED'S ILLR ACTIONS
3. AN EMPIRICAL MODEL OF FED SWAP LINE SELECTION
4. THE INTEREST RATE THREAT AND THE FED'S ILLR ACTIONS
5. TRANSCRIPT ANALYSIS OF FOMC MEETINGS
5.1 The Initiation of the Swap Lines and the TAF, August 2007 - December 2007
5.2 Incremental Expansion of Liquidity Facilities, March 2008 - August 2008
5.3. Rapid Growth of the Swap Program: September 15, 2008 - October 28, 2008
5.4. Swap Lines for Four Emerging Markets: October 29, 2008
6. CONCLUSIONS
CHAPTER 8 - Conclusions
1. CONTRIBUTIONS
2. THE FUTURE OF THE UNITED STATES AS ILLR
3. POLICY IMPLICATIONS
4. FINAL THOUGHTS
BIBLIOGRAPHY
APPENDIX
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