Collusion: How Central Bankers Rigged the World by Nomi Prins

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MEXICO: There’s No Wall Against US
Financial Crises
We’re in round one or two. This is a fifteen-round fight.
—Guillermo Ortiz, governor of the Central Bank of Mexico, World
Economic Forum in Davos, Switzerland, January 23, 2008
In early 2008, Mexico boasted a large and thriving economy. After five
years of steady growth, GDP had reached over $1.1 trillion by 2008 from
$770.2 billion in 2002.
As a gateway to Latin America, Mexico seemed destined to be a US
subsidiary, not a partner. So it was doubly ironic when the United States
“sneezed,” as it were. The recklessness of the US banking system and
insufficient oversight by its key regulator, the Federal Reserve, caused a US
financial crisis that temporarily inflicted a “cold” on one of its top three
trading partners.
Having suffered several crises over the previous decades, Mexico had
attempted to strengthen its financial stability by crafting a diverse economy
that boasted an ambitious population keen on expanding cultural, business,
and technological prowess. Mexico was also well positioned with a bounty
of natural resources. Both a burden and a curse, the country relied heavily
on the United States economically. This would prove to be one of the
principal challenges that its central bank, Banco de México, faced when
trying to act independently of the Fed.
Balancing its domestic responsibilities with the demands of the Fed put
a strain on Mexico’s historic devotion to US policies. Both of Banco de
México’s successively serving governors, Guillermo Ortiz and Agustín
Carstens, reacted in different ways to the push from the Fed and pull from
their country.
Ortiz was a man of fortitude, though. He had navigated several Mexican
economic crises, including as minister of finance during the 1994 peso
crisis. At the time, the New York Times called Ortiz “a bulldog administrator
—short on style but tough enough to take on anyone who crosses him.”
Prior to that, he was chief negotiator for Mexico during NAFTA (North
American Free Trade Agreement) discussions and an executive director at
the IMF from 1984 to 1988.
Ortiz served two consecutive six-year terms at the helm of Banco de
México, from January 1998 to December 2009. His father was a soldier
during the Mexican Revolution. The military family background affirmed
Ortiz’s stalwart personality. He led the central bank with a steady hand. He
played by the rules of procedure, mixed with lessons of past experiences.
That understanding cemented his decisions while giving rise to political
tensions when the central bank’s monetary policy clashed with the
government’s fiscal one.
His successor, Carstens, had a slightly more global establishment
background and disposition. He was well versed in the ways of the
International Monetary Fund and maintained personal friendships with its
leadership. Carstens was more Americanized than Ortiz and was an avid
Chicago Cubs fan from his graduate years at the Milton Friedman school of
economics, otherwise known as the University of Chicago.
The Fed’s emergency money-conjuring policies stoked domestic power
squabbles between the central bank and the government. Growth in
Mexico’s international reserves had enabled the central bank to withstand
adverse moves in capital markets like the US financial crisis. But the
aspirations of the two men varied. Ortiz was a product of the Mexican
establishment; he understood its power dynamics and how to navigate its
political channels. For his part, Carstens (a confident, corpulent, well-

connected multinationalist) believed the central bank was more tied up with

Collusion: How Central Bankers Rigged the World by Nomi Prins