International Financial Crises Increasingly Take Priority Over Most Traditional Security and Foreign Policy Problems, Concludes New Council on Foreign Relations Book

January 8, 2003 11:32 am (EST)

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September 7, 2001 - 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.

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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.

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