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Bank run in Asia – Bank of East Asia, a HK bank with $51b in assets
The article continues with thoughts on the potential vulnerability of Eastern Europe, India and South Korea, which are countries and regions that rely heavily on international financing for government funding. Neither South Korea or India will see substantial sums maturing in 2009, though.
“I view the ratings agencies as one of the key culprits. They were the party that performed that alchemy that converted the securities from F- rated to A-rated. The banks could not have done what they did without the complicity of the ratings agencies.”
—Joseph Stiglitz, 65, the Nobel laureate economist at Columbia University in New York.
“I believe if the credit markets are not functioning, that jobs will be lost, the unemployment rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover. My interest is solely for the strength and recovery of the U.S. economy.”
—Bernanke to the Senate Banking Committee on 23 September 2008
U.S. home prices fell 0.6 percent on a seasonally-adjusted basis from June to July, according to OFHEO’s monthly House Price Index. For the 12 months ending in July, U.S. prices fell 5.3 percent, and the cumulative decline since the April 2007 peak is 5.8 percent.
The value of the July 2008 Monthly House Price Index is roughly equivalent to the October 2005 index value
The market could not have taken another week…an economic Pearl Harbor.
I think it was the last thing Hank Paulson wanted to do, but there’s no Plan B for this. I am betting on the Congress doing the right thing for the American public and passing this bill. [The economy is] everybody’s problem…a bathtub — you can’t have cold water in the front and hot water in the back.
I certainly have a vote of confidence in Goldman and vote of confidence in Congress
It’s nice to have a lot of money, but you know, you don’t want to keep it around forever. I prefer buying things. Otherwise, it’s a little like saving sex for your old age.
For the United States, a Chinese decision to abandon the dollar would be tantamount to Pearl Harbor without the war. It would represent a challenge to the world’s biggest economy by the world’s fastest growing economy. Millions of people would see their standard of living suffer as a result, and American self-confidence, already shaky, would crumble even further. The United States would suffer a serious blow on its very own turf, the economy.
—Business Week, November 13, 2007: oblique reference
As a prime example [Taylor] offers the 1973 hike in oil prices by the OPEC nations, which [Taylor] calls “a kind of economic Pearl Harbor in which warnings bearing on its imminence were either ignored, misread, or filed without reaching the officials responsible for action.”
—General Maxwell Taylor, retired Chairman of the Joint Chiefs of Staff, quoted and paraphrased in Time Magazine, March 31, 1975
No disaster, however, has been more visible from a distance—or caught people more off guard—than the energy crisis. The failure to head it off, despite loud and repeated warnings, may some day be considered America’s economic Pearl Harbor.
—Gerald Clarke, Time Magazine, 1973
Nobel Prize-winning economist Paul Samuelson viewed the fluctuations on the European money-markets as a “very good thing…not an economic Pearl Harbor”
—Paul Samuelson, quoted in the St Petersburg Times, May 11, 1971
Unless we are able to send tremendous labor battalionis to the jungles of the Amazon—and here the scarcity of shipping is important — it will be seen that the United States has in effect suffered an economic Pearl Harbor. And like Pearl Harbor, the rubber defeat came about largely because we were caught napping.
—Rubber Shortage Is an Economic Pearl Harbor for Nation, St Petersburg Times, January 7 1942
What Happens During Delevering
- Risk spreads, liquidity spreads, volatility, term premiums – they all go up.
- Delevering slows/stops when assets have been liquidated and/or sufficient capital has been raised to produce an equilibrium.
- The raising of sufficient capital now depends on the entrance of new balance sheets. Absent that, prices of almost all assets will go down.
“Accounting rules require banks to value many assets at something close to a very low fire-sale price rather than the hold-to-maturity price. If the Treasury bids for and then buys assets at a price close to the hold-to-maturity price, there will be substantial benefits.”
—Bernanke to the Senate Banking Committee today.
“In the long term, there were benefits, but it took half a decade before they began to show in the economy”
—Esko Ollila, a member of the Bank of Finland board from 1983 to 2000
“I know why you are conservatives — you favor private enterprise for the poor and socialism for the rich”
—Gary Hart, to a group of wealth conservatives during his 1984 Presidential campaign
Sweden told its banks to write down their losses promptly before coming to the state for recapitalization. Facing its own problem later in the decade, Japan made the mistake of dragging this process out, delaying a solution for years.
“The public will not support a plan if you leave the former shareholders with anything,”
—Urban Backstrom, a senior Swedish finance ministry official at the time.
If I go into a bank, I’d rather get equity so that there is some upside for the taxpayer…For every krona we put into the bank, we wanted the same influence. That ensured that we did not have to go into certain banks at all…If the valuation is bad, from the taxpayer’s point of view, you lose, and that decreases the legitimacy of the plan
—Bo Lundgren, Sweden’s finance minister at the time
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