Tan Kin Lian's Blog: Weakness of the Global Financial System

Wednesday, July 16, 2008

Weakness of the Global Financial System

During the Asian Financial Crisis, the fund managers created havoc in the Asian financial markets. It caused high volatility and sound companies to be bankrupted, due to a liquidity crisis.

The same situation is now happening in the US financial markets. Many fund managers are short selling the shares of Fannie Mae and Freddie Mac, causing great stress to the financial markets. The Securities Exchange Commission is introducing measures to stop the short selling of these shares.

A report said that the traders are creating rumours on Leyman, so that they shares can be beaten down.

My reading is that this credit crisis reflects a severe weakness of our current global financial system, which is subject to excessive speculation and manipulation. It is not reflective of the real economy. I hope that the lessons can be learnt and that shortcomings can be fixed.

5 comments:

ym said...: fully agree that the global financial system is fundamentally weak and even flawed..

these problems are mainly caused by the practices of central banks worldwide of manipulating interest rates and forex rates and almost always results in inflating the money supply..

these practices creates :
- severe misallocation of resources (eg american consumes, asian produces)
- a boom and bust cycles (global property bubbles, tech bubbles)
- a real economy that is vulnerable to bubble-blowing
- skewing the wealth distribution (eg 10% of ppl controlling 90% of wealth)

we are facing a possible global recession more severe than our generation has experienced.. the great credit bubble is finally collapsing..

what interesting times!!!; July 16, 2008 9:05 AM
ym said...: i want to share this statement from a US senator abt the Fed...

http://bunning.senate.gov/public/index.cfm?FuseAction=NewsCenter.NewsReleases&ContentRecord_id=2753fd62-c45e-4a40-5ca8-66fa83d52a00

"First, on monetary policy, I am deeply concerned about what the Fed has done in the last year and in the last decade. Chairman Greenspan’s easy money the late nineties and then following the tech bust inflated the housing bubble and created the mess we are in today. Chairman Bernanke’s easy money in the last year has undermined the dollar and sent oil to new record highs every few days, and almost doubling since the rate cuts started...

Second, the Fed is asking for more power. But the Fed has proven they can not be trusted with the power they have. They get it wrong, do not use it, or stretch it further than it was ever supposed to go. As I said a moment ago, their monetary policy is a leading cause of the mess we are in...

Now the Fed wants to be the systemic risk regulator. But the Fed is the systemic risk. Giving the Fed more power is like giving the neighborhood kid who broke your window playing baseball in the street a bigger bat and thinking that will fix the problem. I am not going to go along with that and will use all my powers as a Senator to stop any new powers going to the Fed. Instead, we should give them less to do so they can do it right, either by taking away their monetary policy responsibility or by requiring them to focus only on inflation... "

OUCHhh!!!
i especially liked the part he said "the Fed IS the systemic risk"... brilliant!!!; July 16, 2008 9:21 AM
siewkhim said...: Dear YM,

Why are we worried how the Fed or the Yankees are screwing their economy.

In Singapore we got the godly top world class leaders who have the solutions for any economic disaster.

Nothing to worry lah. While the whole damn world is going to be in deep deep shit of a recession, Singapore economy will grow at least 5% pa - because the gods are with us.; July 16, 2008 12:23 PM
zhummmeng said...: I agree that Fed is the systematic risk itself. Let 's wait for this afternoon. All markets are waiting and watching on the sidelines before reacting.; July 16, 2008 12:29 PM
zhummmeng said...: Fed's massage was groom and doom and the markets immedaitely scrambled for cover. Systematic risk indeed.; July 16, 2008 9:08 PM