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.
As Thailand 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 hyper-corrupt system.
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%.
Meanwhile, 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?
The Russians 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.
Who knows, 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?
This current 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.
September 23, 2008
