There are two ways of looking at what happened in the Far East. One is to regard it as essentially a crisis of capitalism, proof positive that capitalism with its tendency towards the extremes of boom and bust is fundamentally flawed. Nor are those who see it this way confined to old- fashioned left-wingers eager to see capitalism at last sowing the seeds of its own destruction. Jeffrey Sachs at Harvard University could hardly be described as left-leaning yet he argues powerfully that the stresses the markets have imposed on countries like Indonesia and Malaysia would have tested any economy, the UK included, to the point of destruction.
However, for staunch defenders of the free-market faith there is another way of looking at it. Asia's problem can be diagnosed as a narrow crisis of crony capitalism, rather than a broader setback. After years of being told that the eastern version of capitalism was superior to the classic western one, this is certainly a rather pleasing way of looking at the whole thing. Blatant political corruption and the very weak financial systems of the countries concerned have given this view powerful ammunition.
The BIS report is a timely reminder that such black-and-white interpretations are rarely valid. Andrew Crockett, a former Bank of England apparatchik and now general manager of the BIS, paints a much greyer but probably rather truer version of events. Neither interpretation is wholly correct, the BIS argues.
Yes, some parts of Asia's banking system and capital markets have turned out to be utterly inadequate. Their political and economic institutions have also proved unequal to the task of coping with the full force of financial markets. On the other hand, the herd-like tendency of banks and investors, their ability to ignore clear warning signals and take excessive risks, amounts to a clear structural weakness within the free market system.
New crisis-prevention measures have focused on getting the Asians to buck up their act, with improved transparency and reformed banking systems, and on beefing up reaction and response from the International Monetary Fund. But the implication of yesterday's report is that the big private sector players who make up the markets have to play their part too. It is next to impossible to force responsibility on financial markets, but they had better start doing it of their own volition if they want to survive. Otherwise the next crisis could indeed be one of capitalism.