TOO EARLY TO CELEBRATE!!!
over the weekend, i received a few enquiries on my opinion over the latest development on wall street. personally, i think it is the only course of action now available to the treasury department and federal reserve to calm the market. the rescue plan is not anything innovative as hong kong and malaysia had set up similar funds to shore up their financial sectors during the asian crisis. in the hindsight, the hong kong government has actually profited substantially from the setting up of the fund. however there is a slight variation between the hong kong fund and what paulson is recommending. the hong kong model bought into the distressed companies while the americans will only be buying the distressed assets from such companies. why would you want to buy only the toxic stuffs and leave the good assets for the companies? secondly, who will determine the buying of the distressed assets and the valuations on them? these are important questions that the americans need to address before the commencement of the rescue plan. i do not think that it will be a good idea to leave the responsibility solely to paulson. after all this will be his last term for the current treasury secretary!
to prevent further decline on their stock prices, the sec is banning short-selling on about 800 financial companies. a very bad idea i think because short sellers provide liquidity to the market. by stopping them is not going to prevent these distressed banks from failing but rather delay the price equilibrium on the values of these companies. for every seller, there is a buyer!
over the weekend, i received a few enquiries on my opinion over the latest development on wall street. personally, i think it is the only course of action now available to the treasury department and federal reserve to calm the market. the rescue plan is not anything innovative as hong kong and malaysia had set up similar funds to shore up their financial sectors during the asian crisis. in the hindsight, the hong kong government has actually profited substantially from the setting up of the fund. however there is a slight variation between the hong kong fund and what paulson is recommending. the hong kong model bought into the distressed companies while the americans will only be buying the distressed assets from such companies. why would you want to buy only the toxic stuffs and leave the good assets for the companies? secondly, who will determine the buying of the distressed assets and the valuations on them? these are important questions that the americans need to address before the commencement of the rescue plan. i do not think that it will be a good idea to leave the responsibility solely to paulson. after all this will be his last term for the current treasury secretary!
to prevent further decline on their stock prices, the sec is banning short-selling on about 800 financial companies. a very bad idea i think because short sellers provide liquidity to the market. by stopping them is not going to prevent these distressed banks from failing but rather delay the price equilibrium on the values of these companies. for every seller, there is a buyer!
lastly, how are the americans going to finance this rescue plan which is planning to buy more than US$800b of toxic assets from the financial companies? during the crisis, at least the hong kong government had money from their foreign reserve to fund their purchases but the us ................
in short, i think usd is going to be weak, the yields on treasury papers have to go up, stocks might continue to slide further and we will be looking forward to a new american president at the end of the year!!!
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