WorldFun Posted March 4, 2009 Report Share Posted March 4, 2009 Is he a genious or a clown? Thinking it over a bit I still couldn't come with why that 'aid package' won't work either? Anyone - jjsushi - other financial hard cocks? Do note the last 2 lines in paraphrases - it's dead serious!: "(Thirachai Phuvanatnaranubala, who is the secretary-general of the Thailand Securities and Exchange Commission, has sent this article to the Obama administration.)" http://www.nationmultimedia.com/2009/03/04/opinion/opinion_30097091.php "Crisis Resolution: Further Urgent Measures Needed By Thirachai Phuvanatnaranubala Published on March 4, 2009 The measures that have been introduced up to now by the US government to resolve this financial crisis are necessary, but not sufficient. It is important that the solutions are comprehensive and effective. If not, this massive financial crisis will bite hard into the real sector next year, and will result in a bad landing for the world economy. The root cause lies in US residential mortgages. Too many Americans were encouraged or enticed to take on higher levels of debt on their houses than they could afford. When high oil prices and inflation eroded their income, they found it difficult to keep up their monthly payments. And when home-owners defaulted, it started two chain reactions. First, the prices of derivative securities backed by mortgages plunged, leading to insolvent financial institutions, fear of bank failure, deposit runs, the interbank market seizing up, and banks holding back credit for new projects. And because financial markets around the globe are interconnected, this affected banks everywhere. Lack of confidence also spilled into capital markets, resulting in losses to both retirement savings and consumer confidence. Secondly, but much more important, mortgages have to be foreclosed and home-owners thrown out (thus leaving empty houses and a negative affect on the neighbourhood). Foreclosed houses have to be auctioned off, leading to a house price decline. House price decline results in negative equity in mortgages, and hence feeds back into a fear of non-performing mortgages. House price decline is also the most important factor that affects consumer spending, leading to lower demand for emerging-market exports worldwide, then lower prices for assets everywhere. It all translates to a hard landing for the whole world. When Thailand went through the 1997 Asian Crisis, we took measures to strengthen the financial institutions. The government then guaranteed bank deposits as well as their debts. Banks had their capital reduced and replenished. But even after they had been strengthened, banks still could not lend new money because the financial health of their corporate customers was still weak. The root cause of the Thai crisis was over-investment by businesses. Non-performing-loan companies were therefore the weak link, causing a lack of confidence. The Thai government solved the problem by setting up Thai Asset Management Corporation. TAMC restructured NPLs by rescheduling payment dates to suit the debtors' cash flow. Basically, the reschedule was done to match the debtors' ability to pay, with conditions for them to pay more should their actual cash flow be better than forecast. This enabled the NPL companies to obtain new trade credits and new working capital. They resumed their operations and retained their employees. The economy would not have recovered otherwise. The lesson is that a comprehensive crisis resolution must address the problem at the root cause. In the case of Thailand, it was the NPL companies that experienced cash flow problems because they over-invested and over diversified. In the case of the USA, it is the residential mortgages. In this crisis, therefore, all efforts must be made to stop the first domino from falling, the residential mortgages - and only the US government can do it. I propose that the US government consider the following measures as a new deal for homeowners: 1. Allow maturity of mortgages to be extended, by at least double, for up to 50 or 60 years. This will not affect the rate of interest but will lessen the monthly payment amounts. It will enable homeowners to continue to service their mortgages, stay in their homes and retain ownership. In Japan, mortgage repayment over two generations of father and son is not uncommon. 2. Guarantee, partially or wholly, mortgages below a certain value. This can be restricted only to houses occupied by owners, to avoid supporting speculative purchases, and only for loans incurred in the past, to avoid future moral hazard. All this, I believe, will result in much less actual government cash outlay than the total mortgage values. Actually, the mere announcement of the new deal will shore up confidence more than any of the previous measures announced. I fear for the emerging Asian economies. A lot of hope is pinned on us to carry the weight of world growth next year. But too many of us have been weakened by domestic political fights. And too many of us are still disproportionately dependent on export manufacturing. But we can carry the weight of world growth. We can do so if, and only if, a comprehensive package of financial crisis resolution measures is undertaken - by the country that matters. (Thirachai Phuvanatnaranubala, who is the secretary-general of the Thailand Securities and Exchange Commission, has sent this article to the Obama administration.)" Link to comment Share on other sites More sharing options...
drogon Posted March 4, 2009 Report Share Posted March 4, 2009 No matter if he is a genius or a clown -> nobody will listen to him.... Link to comment Share on other sites More sharing options...
WorldFun Posted March 4, 2009 Author Report Share Posted March 4, 2009 even Obama - he sure needs all the advice he can get - well good advice mostly? Link to comment Share on other sites More sharing options...
Dexi Posted March 4, 2009 Report Share Posted March 4, 2009 Its what the Chinese do that really counts....China shares had a bit of a bounce today on news of another stimulus package... Link to comment Share on other sites More sharing options...
drogon Posted March 4, 2009 Report Share Posted March 4, 2009 Read an interesting article about China and its middle-upper class... China is in for a big nasty suprise on the short/middle term -> same kind of nasty suprise Spain had the (dis)pleasure to discover with its property/construction sector... http://news.bbc.co.uk/2/hi/asia-pacific/7907631.stm Given the huge numbers involved China is clearly heading straight away to "live" the same cataclysm Spain is currently experiencing -> if the current Spanish situation is a good indicator then I prefer not imagine what could happen to the Chinese property bubble....... http://news.bbc.co.uk/2/hi/asia-pacific/7922699.stm http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/03/china_all_about_jobs.html http://news.bbc.co.uk/2/hi/asia-pacific/7922720.stm http://news.bbc.co.uk/2/hi/business/companies/7919254.stm I start to wonder if people (outside China) have an accurate picture of the real situation of the Chinese economy.... Could the "hidden flaws" of China's economy overweight its current strengths?? Link to comment Share on other sites More sharing options...
HeartThais Posted March 4, 2009 Report Share Posted March 4, 2009 1) I don't understand how you double mortgage maturities and keep interest rates constant without forcing the banks to take an automatic loss. You are telling the banks to take the same interest income as before but taking twice as long to repay the principle. So this plan amounts to a blanket transfer payment from subprime lenders to subprime borrowers. 2) I don't see how guaranteeing subprime loans can be cheaper than buying the troubled assets from the bank outright. In the first case, the government is basically converting subprime debt into AAA paper and eating the cost. In the second case, the government is converting subprime paper into whatever a reasonable market value of that paper would be, presumably less than AAA. 3) This isn't about just subprime anymore. Banks are overleveraged and made bad bets in consumer credit, commercial real estate, and corporate credit as well. Either I've completely misunderstood his proposal or the SEC in Thailand is as incompetent as the SEC in the US. I do think he's kinda on the right track. All of the TARP measures so far have hinged on a key concept: that this situation is primarily a liquidity and transparency issue and once the markets start functioning, the rest works itself out. In other words, the underlying assets aren't really as bad as people think they are. But the latest data seems to show that the underlying assets are in fact worse than we imagined. http://www.ft.com/cms/s/0/2970532c-0421-11de-845b-000077b07658.html So to his point, we do have to stop treating this as a market function issue and start treating it as a fundamental insolvency issue. I'm not sure what the solution is but I think it involves letting some more banks go out of business and using resources to shore up what's left. Link to comment Share on other sites More sharing options...
Hardy641 Posted March 5, 2009 Report Share Posted March 5, 2009 Thailand recovered quite fast because of their focus on exports after the crisis. A weak THB and strong US economy were vital for the recovery. Both factors aren't given today. The TAMC just played a minor role and as I remember were prone to corruption (e.g. TPI case). Link to comment Share on other sites More sharing options...
WorldFun Posted March 5, 2009 Author Report Share Posted March 5, 2009 yeah truly a mess be it los, china, spain or US or any other country Link to comment Share on other sites More sharing options...
Recommended Posts
Archived
This topic is now archived and is closed to further replies.