Thailand:Risk without Rewwards: Case study of Liquidity risk and Moral Hazard prior to and during the Asian Crisis

Abstract: This paper examines a few of the fundamental principles in traditional and modern crisis analysis based on models of liquidity risk and moral hazard. The greatest emphasis in placed on moral hazard as it is concluded that this aspect was a central dilemma to the onset of the crisis in Thailand. The theory is analyzed through a Minskian fragility hypothesis and taken further with the Foley model as it best describes that which was most crucial to the crisis. Namely the context of a short-term loan structure denominated in foreign currency. By observing this through firm's balance sheets as capital flow statements one can recieve a clear picture of the truth in the question at hand. That moral hazard and greater risk taking are at the core of the problems that set Thailand into a crisis.