Patient Zero and Roger

the market in interest-rate caps and was caught by a rise in volatility. Colleagues only half-blame cap
king Steve Edelson, since management didn't question his valuations.
Meanwhile the regulators were trying to get some of these new risks properly reported and backed with
appropriate capital. In July 1988 the Basle Committee on Banking Supervision, chaired by Peter
Cooke, issued its guidelines on risk-weighted capital charges for credit risk. They were crude but
effective for 10 years in forcing banks to build up more capital. And it was vital. "By the end of the
1980s Chase, Citi and Chemical Bank were practically bankrupt," recalls Lamfalussy. Japanese banks
had special dispensation to count part of their equity holdings as capital. That came back to haunt them
when Japan's bubble economy burst.
Ok but where did this leave little old New Zealand... Remember that ..
Financial technology was primitive. Spreadsheets were still done by hand inside the Wall Street banks,
and Vydec still vied with Wang in the steno pools in the major law firms. Andy Krieger, the young
derivatives trader dubbed “Patient Zero” who in 1987 would single-handedly short “the entire
money supply of New Zealand,” was still studying South Asian philosophy.[14] Global OTC
derivatives, had they been tracked back then by the Bank for International Settlements, would have had
an aggregate notional amount of near zero.
The above gives you a taste of what was happening around and before the currency crisis that
hit New Zealand. The highlighted text, I feel are the important highlights of the period. Remember that
the Prime Minister of England Hon Margret Thatcher modeled her rein on books such as “ The Road
to Serfdom” by F.A. Hayek who argued that Socialist ideals cannot be accomplished , except by means
that few would approve of.
New Zealand became part of a global economy. With no restrictions on overseas money coming into
the country ( remember the Chicago Mercantile Exchange) the focus in the economy shifted from the
productive sector to finance. Finance capital outstripped industrial capital and redundancies occurred in
manufacturing industry; approximately 76,000 manufacturing jobs were lost between 1987 and 1992.
During wage bargaining in 1986 and 1987, employers started to bargain harder. Lock-outs were
not uncommon; the most spectacular occurred at a pulp and paper mill owned by Fletcher Challenge
and forced changes to work practices and a no-strike commitment from the union. Later settlements
forced more concessions from unions, including below-inflation wage increases, a cut in real wages.
There was a structural change in the economy from industry to services, which, along with the arrival
of trans-Tasman retail chains and an increasingly cosmopolitan hospitality industry, led to a new ‘café
culture’ enjoyed by more affluent New Zealanders. Some argue that for the rest of the population,
Rogernomics failed to deliver the higher standard of living promised by its advocates.
We will come back to this point later.
Now that we understand the history and what was happening in other parts of the world, lets look at the
New Zealand dollar
Changes to the exchange rate regime; U.S. Dollar per New Zealand Dollar....
21 November 1967 The New Zealand Dollar ($NZ) had its Official Rate devalued from US$1.39 to
US$1.12, coming after the Sterling devaluation.
15 August 1971 Following the devaluation of U.S. Dollar, the New Zealand Dollar, through its link to
the Pound Sterling fixed at $NZ2.1429=£1.00, began to appreciate against the American unit.
23 December 1971 The devaluation of the U.S. Dollar on December 18th, the New Zealand was