The Volatility Machine

Here the basic assumption is that capital inflows precede and cause growth.

a market collapse is nearly always implicit in the structure of the market itself.

It is enough to summarize the key liquidity events that preceded the booms.

One way of thinking about this is that the more the expected variation in the net flows (i.e., inflows minus outflows), the more volatile a capital structure is.

The Eurodollar market was the name given to the market surrounding the dollar accumulation in the banking system outside the United States during the “dollar glut” period of low U.S. interest rates in the 1960s.

The second, less obvious, way is to reduce directly the mismatch between revenues and expenses by lining up debt servicing costs with operating revenues.

One problem with most LDC securities markets is that there is a very poor balance of investors.

It is the structure and behavior of market players that systematically undermines the market, not changes in fundamentals. These only set off the crisis.

The magnitude of the crisis, in other words, largely reflects the capital structure of the affected economy,