Re: The Credit Crunch: The Big Recession?

On Thu, 20 Dec 2007 22:59:40 GMT, PaPaPeng <PaPaPeng@xxxxxxxxx> wrote:

The ECONOMIST article below should be of interest (to poon) on the
folly of blindly trusting figures to measure human thought and
conduct. Two paragraphs are of particular interest.

1. In theory the damage is safely contained off banks' balance sheets.
But then, in theory American house prices never fall.
The banks have belatedly discovered that they cannot just abandon their failing progeny of SIVs,
conduits and the rest-at least if they want a reputation worth having.
Worse, the banks now facing up to these contingent liabilities have not had to set aside capital
in case of trouble-that gap in the regulations was precisely what made it so attractive
to get their investments off the balance sheets in the first place.

PPP: Reputation does matter. China's is stellar. Putin is Time's man
of the Year. Bush's stinks.

2. There is an irony in seeing state-owned investors bail out capitalism's most ardent exponents;
back when money was plentiful, the government outfits were rebuffed.
But the banks are less choosy now. Moreover, the frenzy of innovation around debt
and securitisation got out of hand. Risk was supposed to be bought by those best able to afford it,
but often ended up with those seduced by yields they did not understand.
Mathematical brilliance was supposed to model risk with precision,
but the models evaporated along with the liquidity that they had failed to quantify.
Rating agencies were supposed to serve the market, but their first loyalty seems to have been to the issuers who were paying their fees.

PPP: The crisis is concentrated on the big western banks. Asian
banks seem to have escaped the worst of the subprime crisis. Is this
just a delay until real losses are uncovered?
Mathematical modelling and technical expertise gets trumped by greed
and unjustified optimism any day, a very common human failing. You
can't put a measurable figure to that. Math modelling only goes so
far and only when everyone plays by the same narrow rules.

=========================================

What I really need to say is there was a time not that long ago when
we mere mortals of color believed that the white guy experts were so
clever that we could never understand the complexities of the modern
world they created. So we trusted them to lead and all we had was to
follow. The prime examples of this attitude are the Japanese, the
Indians and the oil rich Arabs. They are the countries (except India)
with lots of money and needed somone to manage their money hoard
without themselves having to do too much or worryinmg about its own
currency stability. The same went for democracy, foreign policy,
technologies, cultural (Hollywood and MacDonalds) practices and so
on. China was too poor, isloated by western hostility and needed the
foreign earnings to invest at home anyway until quite recently (last
25 years.)

What we have learnt over the past few years is that the white guys are
not that smart after all. And even their ruling elite are as greedy,
unethical if not downright as crooked as the next man. They have
disgraced and therefore destroyed their own credibility. And Iraq has
shown that they bleed as easily and their all conquering military
machine has limits.

What this leads to is that a paradigm change in the balance of world
powers has already occurred. The white guy can no longer just walk
into a room and assume that he is the top dog who is the authority on
everything must less lecture others on how to behave. He has to show
respect and consideration for the opinions of others jjst as he can
expect others to show the same for him. That is he has to treat
others as equals, not as master and servant.

This establishes a whole new ball game. Now anyone's ideas has equal
footing and there are few if any barriers to global acceptance. Until
recently any proposal that hadn't the blessing of the US and perhaps
the EU has almost no chance of being heard let alone be acted on. The
new players, China, the oil rich arab states, and a few slightly less
rich states have the discretionary financial resources to make things
happen in the global scene. Against this the US, EU and Japan may
still have more assets as expressed in national wealth. But these are
fixed assets that cannot be easily translated into buying power.
They have little discretionary money to take advantage of and
influence global economies. Furthermore the US and West have sold
themselves the mantra that private enterprise and free markets be the
vehicle to drive national strategies. No private entity, no matter
how rich or big can match the resoursces and unity of purpose against
a foreign state's resources in money, manpower, breath of talent and
scope of action.

The conclusion now is that many new global players, in particular
China, can now make the rules by which others will have to follow if
it wants into the Big Game. This big power game is of far more
significance than being the biggest and best in any particular area.
China has a commanding lead in this new game.
.

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