In This Review

Stress Testing the System: Simulating the Global Consequences of the Next Financial Crisis
Stress Testing the System: Simulating the Global Consequences of the Next Financial Crisis
By Roger Kubarych
Council on Foreign Relations Press, 2001, 187 pp.

How would U.S. policymakers respond if the American stock market and dollar both tanked? And if Brazil defaulted on American bank loans, Mexican presidential elections were contested, and Argentine financial markets went into free fall? And if Saudi Arabia threatened to liquidate its dollar holdings and go its own way on foreign policy, contagion beset Turkey, Libya obtained nuclear weapons from Russia, and Taiwan contemplated declaring independence -- all at the same time? This book paints a vivid picture of a twenty-first-century crisis that weaves together simultaneous financial and foreign policy challenges. Kubarych applies war-game methodology that has been used for centuries to the economic crises that today's policymakers are likely to encounter, confronting the impersonal enemy of financial-market panic and contagion against the backdrop of toppling governments, soured diplomatic relations, and emboldened bad guys. Unfortunately, recent events suggest the simulation scenarios are all too plausible.

The book's greatest value is how it demonstrates the potential for applying war-game tactics to today's complex crises. Also noteworthy is the simulation's artful design, which could be usefully deployed at graduate schools and in executive training programs. Readers will find the simulation scenarios thought-provoking, and the responses of the simulation participants provide helpful insights into the institutional proclivities of key U.S. government players. Nonetheless, readers with a sophisticated grasp of the interplay between international finance and foreign policy may want to look elsewhere for broad historical lessons and policy recommendations on crisis prevention and response.