Comparing 2008 Banking crisis to Mexico’s 1994 Crisis

Although the two were created out of different circumstances, the end result seriously effected the banking and financial industries of both countries. For Mexico, 1994 was a complete financial meltdown. The peso de-valued, many of the banks needed to be bailed out, and credit dried up, literally for years. In 2008, for the USA, the dollar has so far remained strong, but the banking industry is suffering and the availability of credit has become very tight. Hopefully it will not effect the country like it did Mexico, in that credit availability from banks did not appear again for nearly a decade.

But two good things came out of this. One is that businesses and households learned to function without credit, which isn’t such a bad thing. When people ask me while so many homes in Mexico are partially finished, with rebarb sticking out of the top floor and the roof unfinished, I tell them that’s what happens when there’s no credit. People build when money is available. However, the end result is they have a home that is completely paid for. It may not be anything fancy, but its 100% theirs. Most households in Mexico do not carry a lot of debt. As a small business owner, I learned to function without credit. If you wanted to start any major endeavor, you first had to have the funds to do so or do it carefully through cash flow. And, since they were your funds, you tend to be more careful with how they were spent. As with Mexican households, most Mexican small businesses also carry little debt. These are positive aspects of what its like living without the availability of credit. Perhaps the USA needs to go through a similar adjustment – less credit and more savings.

Mexico was fortunate enough to have the USA, especially with the assistance of Bill Clinton, to obtain the funds they needed to get them through their 1994 crisis. Clinton lent Mexico $50 billion dollars, of which Mexico paid back in full and ahead of their payment schedule. Mexico was probably also fortunate that the person who became president in late 1994, Ernesto Zedillo, had his doctorate in economics. His policies, or those put into place for the banking industry to ensure this type of crisis would not happen again, have given Mexico some of the strongest bank regulations in the world, and Mexico has managed to avoid what is currently financially ailing many other countries. Perhaps Mr. Zedillo would be available to provide expertise to the next American president!

Another interesting aspect is that these “crisis” are not as big of a deal in Mexico, as Mexicans have lived with these “crisis” for years. For Mexico, they are timely, they take place every six years when a new president takes power. Most Mexicans have grown up just expecting these type of situations!

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