Hi! managers: The destructive power of blind ambitions

As economies in the US, Europe and Japan deflate that loud noise you hear is the sound of liquidity being sucked out of global markets, as individuals and businesses around the world preserve cash and brace for a tough 2009. 

Sounds familiar? 

It is the same noise we heard in 1997 here in Thailand, after the devaluation of the Thai baht, when foreign capital fled the country, leaving the Thai economy high and dry.

Those who cannot learn from past mistakes are doomed to repeat them. It seems we have fallen into this trap. The same combustible mixture of abundant credit or "easy money" and ambitious growth that led to Thailand's economic bubble and subsequent meltdown in the 1990s have fuelled our current worldwide recession.

What should we have learned? Back in the early 1990s, Thailand embarked on a period of rapid economic growth. High domestic interest rates and a fixed foreign exchange encouraged businesses in Thailand to borrow cheaper foreign currency. 

As a result, money poured into the country. Aggressive investing in risky assets, in-cluding real estate and equities to turbo-charge returns, created huge asset bubbles with questionable underlying value. 

I remember a friend of mine telling me how his housewife was making a killing in the Thai stock market, even though she had no experience investing. Everything she touched turned to gold, he said. But if it sounds too good to be true, then it usually is.

In July 1997, the baht was devalued and the asset bubble burst. When investors came calling for a return on their investments, they discovered that people had over-promised and under-delivered. The economy imploded and capital seemed to vanish.

Eventually, the International Monetary Fund had to intervene and provide Thailand with a $17 billion (Bt613 billion) bail-out loan - a huge amount back then, but one that pales in comparison with the trillions of dollars needed today to stabilise the world economies.

The current economic crisis bears a striking resemblance to what happened in Thailand a decade ago. As Roger C Altman wrote in Foreign Affairs re-cently, "the underlying cause of the financial and economic crash of 2008 was a combination of very low interest rates and unprecedented levels of liquidity".

When this easy money was mixed with exuberance to generate strong returns on risky investments, such as sub-prime mortgages, you had a toxic mixture.

The pain and suffering back in 1997 was awful. The pain we are undergoing now could be even worse. 

But having been burned twice, maybe we will have finally learned to moderate our ambitions and live more within our means.

Larry Chao is managing director of Chao Group Limited, an organisation change and training consultancy located in Bangkok and New York (www.chaogroup.com) Follow his article every first Monday of the month.