172 THE BiG DROP
more closely resembles that 1997–1998 crisis than it does the
one in 2007–2008.
Let’s skip over the dotcom bubble in 2000 because that
was clearly a bubble with an associated market crash but not
a severe recession. We had a mild recession around that time,
and then of course that played into the volatility due to 9/11.
It was painful if you were in some of those dotcom stocks, but
that wasn’t a real global financial crisis of the kind we saw in
1998 and again in 2008.
What are some of the characteristics of 1998 that I think
we are seeing now?
What was interesting about that time was that the crisis
had started over a year earlier — July 1997 in Thailand. It
ended up in my lap at LTCM in September 1998 in Greenwich,
Connecticut. That was fifteen months later and about halfway
around the world.
How did a little problem that started in 1997 in Thailand
end up in Greenwich, Connecticut fifteen months later as
ground zero?
The answer is because of contagion. Distress in one area of
financial markets spread to other seemingly unrelated areas of
financial markets.
It’s also a good example of how crises take time to play
out. I think that’s very important because with financial news,
the Internet, the web, and Twitter, Instagram, Facebook, chat
and email, there’s a tendency for people to focus on the instan-
taneous and ignore trends.
That’s what I call the curse of the two-second attention
span. If there is a crisis it’s going to take twelve or fourteen
or maybe eighteen months to play out. When people hear
that they go to sleep, then they wake up the next day and say,
“Well, nothing bad happened today, I guess everything’s fine.”
That could be a mistake. Don’t expect the kinds of things
in this book to turn around and bite us tomorrow morning. It