Just a little
more than ten years ago as the Asian financial crisis was in full
swing, Thailand’s financial system was on the brink. The currency
had devalued, the stock market had crashed, and capital was in short
supply. The crisis had yet to spread to other countries, and everyone
was hoping that any fallout could be contained.
was on the brink, Suharto, the President of Indonesia, decided to
help his distressed fellow member of ASEAN, and committed a billion
US dollar loan to help. I remember that moment, thinking, They couldn’t
make money out of thin air any more than Thailand could. Hell, if
Thailand could fail, so could Indonesia, which had an even more
Of course within
weeks the crisis did spread to Indonesia, and the promised billion
never arrived in Bangkok, as Suharto soon found out his country
was writing a bad check. The dominoes continued to fall, and even
affected Hong Kong and Singapore, places with huge amounts of capital,
and sound finances.
In fact, at
the time of the crisis, Hong Kong had more foreign reserves than
the whole value of the stock market. Yet, within one year the Hang
Seng Index had dropped by more than half, and within three years
property prices had fallen by 70%.
we are now in the midst of the biggest financial crisis in the US
since the great depression. The US government has continued to do
everything they can to stabilize the market, even if that means
nationalizing the mortgage market and throwing a trillion dollars
of good money after bad.
When I saw
George W. Bush on TV describing this massive bailout, I thought,
I’ve seen this before, a clueless President committing money he
doesn’t have to bail out a corrupt and non-functioning system. It
was obviously another "Suharto moment."
When the suits
and ties finally got to Indonesia to arrange a bailout, these foreign
bankers from the IMF and World Bank were full of plenty of advice
on how to turn things around, as long as Indonesia was ready to
sell its prime industries on the cheap, and deregulate their financial
markets so that foreigners could buy them up.
For the US,
the situation is the same, for it is the foreigners who hold all
the cards (the money), and the Americans who must go cap in hand
to ask for just one more little bit of billions to help them out.
Well, as the Fed is now out of money, and has started to issue bonds,
and as Wall Street is short of capital, the hundreds of billions
that are required to bailout the sinking ship will come from such
people as the Chinese, Arabs, and Russians.
Of course they
are all willing to help, by buying low-yielding treasuries that
do not compensate for their currency risk. Sure, they will. Just
as always, right?
surely will, particularly after America’s moderate response over
Georgia — never mind. OK what about the Arabs? Gee, I guess they
are still smarting over Iraq and Lebanon (remember our cluster bombs?
or the Dubai Ports fiasco).
Thank god we’ve
got the Chinese, they will help, right? Uh oh. Our Senate is wisely
passing a bill to punish China over human rights in Tibet, and we
are pushing for a bigger role for Taiwan in the UN — good timing!
So this time,
the foreigners won’t be rushing to help, as they may just decide
it is time to cut their losses. And, when finally, the suits and
ties from New York start to beg, well, they may just help, but on
terms that will no longer be so cheap.
Americans might have to get used to borrowing RMB (Chinese yuan).
Also, a lot of our big companies might suddenly be owned by foreigners.
How do you like the sound of Goldman Wang & Ho, or Dubai Wachovia?
crisis will really start to get interesting when the foreigners
call Bush’s bluff. I can see it now, when W. is sitting at some
elementary school reading a book, and one of his aides whispers
in his ear, "Guess what sir? we are out of money, we are bankrupt"
and Bush says, "that’s OK, I will just call the Saudis and
they will bail us out." "Already did sir, and they didn’t
even answer our call," said the aide.
Thank god I
won’t be President anymore — thought W.