Stress testing the system

[Sabri Oncu <soncu@xxxxxxxxxxx>]

Friends,

Please take a look at the address below,

http://www.cfr.org/public/resource.cgi?meet!2746

and tell me anything you know about this stress testing story.
There is a book out on this but I have not seen it yet. The book
information is below. Also, there is a related interesting
article in the recent issue of The National Interest, a sample of
which you can read here:

http://www.nationalinterest.org/issues/67/Jones.html

There are two other books mentioned in the above article that the
interested researchers may find useful. One of them is called
"The End of Globalization". Apparently, The National Interest is
very much interested in publishing information about "The End" of
everything, from history to globalization.

Sabri

++++++


Stress Testing the System: Simulating the Global Consequences of
the Next Financial Crisis
By Roger M. Kubarych
Council on Foreign Relations ( October 2001 )


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What if you took seventy-five of the most experienced
professionals in the fields of finance, economics, foreign
policy, and national security and confronted them with two dozen
policy problems triggered by a massive contraction in the stock
markets? That was the premise of an unprecedented simulation
conducted by the Council on Foreign Relations, and the subject of
Council Fellow Roger Kubarych?s new book Stress Testing the
System: Simulating the GlobalConsequences of the Next Financial
Crisis. This book captures the way in which the simulation was
organized and played out at a time when the U.S. stood at the
pinnacle of the 1990s high-tech boom.

The major conclusion that flows from the work of Kubarych and his
colleagues is this: when there is a shock to the international
financial system, U.S. policymakers will deal with the financial
crisis first, even when there are other foreign policy and
security concerns at stake. Because the strength of the U.S.
economy is so critical to global prosperity and to the financial
health and political stability of most nations, without first
restoring stability in the markets and reducing the potential for
subsequent negative economic consequences, policies to address
other problems will be less effective.

This hypothetical crisis helps us better understand the ripple
effects of recent financial troubles. Crises reverberated through
Mexico in 1994-95, Asia in 1997-98, Russia and Brazil in 1998,
and, just recently, Argentina and Turkey. In every case, what
began as financial traumas soon broadened out to infect the
economies, and almost always the political systems, of these
countries. Even the United States, largely spared financial
trauma during the past ten years, is beleaguered by the
precipitous drop in the high-tech equity sector, and people are
uneasy about the U.S. economic outlook.


The Council?s simulation was an exploration of financial
vulnerabilities and their connections with broader economic,
foreign policy, and national security considerations. It assumes
that economic and market forces will play an increasing role in
the setting of policy objectives, priorities, strategies, and
responses. The aim was to challenge a group of experts to work
through the options and constraints facing the U.S. government in
the aftermath of an unforeseen financial crisis beginning in the
United States and spreading throughout Latin America, Europe,
Asia, and the rest of the world.

This book is more than a revealing account of the lessons and
implications of time ? and crisis-pressured decision making: it
is an instructive guide for how best to organize business and
financial "war-gaming." Kubarych provides an insider?s look at
the collaboration among great minds that led to a successfully
crafted scenario that was played out with real-world accuracy.