Is the Sub-Prime Crisis in US going to affect IPs in Australia ?

Admittedly Roach has been a bear for years. Eventually he'll call it right.
Alex
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Dear Alex,

1. Irrespective of Roach's position, we still cannot rule out his following factual claim:

"...Growth in Asia was export-led, with the American consumer often the 'end game' of the Asian growth machine...The US is a US$9.5 trillion consumer. China is a US$1 trillion consumer. India's a US$650 billion consumer".

2. It is further suggested that the Chinese Economy is expected to over-take the US Economy as the world's biggest economy is about 20 years time and not in the immediate near future.

3. Roach is not only one who is saying that USA risks going into a Recession in 2008. So does Alan Greenspan thinks so presently.

4. In fact, most of the market commentators interviewed on CNBC and quoted in a number of international newspapers believe that the US Economy is already in for a significant economic slowdown in 2008 ... a "growth recession", rather than an typical "economic recession" scenario.

5. for your further comments/discussion, please.

6. Thank you.

Cheers,
Kenneth KOH
 
Dear Tubs

1. Based on the what LA Aussie has posted regarding the Australian Govt's previous housing related polices, (including the GST implementation in 2000s) and its attendant impact on the local housing markets, I personally believe that the attendant consequences, arising from the recent change in the RBA Chairmanship and the Australian Federal Govt, on the Australian Economy in general and the various housing markets in particular, cannot be effectively ruled out for our own investing considerations, if we are to continue to invest safely and profitably in Australia.

2. While I do agree with you that the Australian housing markets are likely to continue to operate normally, based on its existing market supply and demand forces, at the basic fundamental level, we also cannot ignore the role of the new govt or/and the likelihood of its new govt policies that may be introduced in due course, which may have some significant impact on the local housing markets in the near future.

3. Consequently, I think it is important for us to seriously consider this investing assumption as to whether Australia is able to continue to effectively insulate its Australian Economy, and to escape unscathed from the various anticipated global financial crisies, which are fast emerging outside Australia during the 2008-2010 period, following the recent change in the RBA Chairmanship and a new less pro-business ALP Federal Government.

4. Personally, I prefer not to take Australia's past track record regarding its last 16 years of continued economic prosperity for granted, with this new team of leadership.


Cheers,
Kenneth KOH
 
3. Consequently, I think it is important for us to seriously consider this investing assumption as to whether Australia is able to continue to effectively insulate its Australian Economy, and to escape unscathed from the various anticipated global financial crisies, which are fast emerging outside Australia during the 2008-2010 period, following the recent change in the RBA Chairmanship and a new less pro-business ALP Federal Government.

You invest assuming the Australian economy is on a smooth road to growth? I don't. I don't expect Australia to emerge unscathed from the liquidity crisis. I expect Australia to suffer, and I'll be there to take advantage of it.

Surely a crisis is the BEST time to invest? And you're cashed up, no?
Alex
 
You invest assuming the Australian economy is on a smooth road to growth? I don't. I don't expect Australia to emerge unscathed from the liquidity crisis. I expect Australia to suffer, and I'll be there to take advantage of it.

Surely a crisis is the BEST time to invest? And you're cashed up, no?
Alex
+++++++++++++++
Dear AlexLee,

1. I make no apologies that I used to derive some investing comforts from the Australia's past track record of 16 years of continued economic prosperity and the fact that Australia has always managed to escape relatively unscathed from the previous major financial crises over the last 16 years.

2. The fact I do consider Australia to be much "God-Blessed" Nation, the best place to live on Earth, highly successful and unique in the world to be able to continually enjoy the prolonged economic prosperity and to successfully attract a lot of international immigration over the last 16 years, is one major reason why I choose to invest here;- even though I may not truly understand how Australia is effectively governed or/and actually operated on the ground, so as to be able to enjoy such prolonged economic prosperity.

3. Please note that as fellow investors, we'll each have different investing considerations and different risk tolerance threshold to support/complement our own unique investing strategy.

4. What works well for you may not neccessarily work well for me. What you found "comfortable" to invest, may not neccessarily appeal to me, either.

5. While I am presently "comfortable" investing and have personally find it easy and highly profitable to invest in a booming market situation, whether be it in the booming Goldcoast property market from 2001-2003 period or more recently, in the Perth's booming housing market during 2003-2006 period.

6. However, I do acknowledge that I am presently still "new", relatively "in-experienced" and not as comfortable in investing in a declining housing market or/and in one which can be greatly adversely affected/"dictated" by the external financial crises occuring outside Australia.

7. This is despite I am presently open to the idea and willing/trying to learn how to invest safely and profitably under such different/adverse circumstances, at this point in time. The challenge for me now, is one of investing safety, prudency and ability to profit from such different investing circumstances.

8. Despite I having the "head" knowledge, at this point in time that more monies can be made during a crisis/bust than during a boom, and that monies are made when we buy rather than when we sell the houses, I am still not fully at ease nor mentally ready yet, to comfortably and decisively act on this kind of new investing under such adverse circumstances/market conditions.

9. If you are already comfortable investing in a bust/crisis scenario and able to invest profitably from it yourself, I extend my sincere and personal congratulations to you.

10. However, it does not neccessarily mean that I will immediately follow you likewise, at this point in time.

11. While I remain optimistic about investing into the Sydney housing market from 2009 onwards, based on its past property cycle trends/timing, there are new "risks" involved following the new uncertainities arising from and given the recent change in the RBA chairmanship, change in the Australian Federal Govt and midst the present unfolding of the various major global financial crises worldwide.

12. Consequently, I prefer to and have personally find it more comfortable for myself, to cash out part of my existing property portfolio and to lower my personal debt level at this point in time as well as to hold a bigger cash reserve as my safety buffer even though my capital may not be working as efficiently as before.

13. Being new and in-experienced in investing under such adverse circumstances, I have decided that safety and prudency shall pre-dominate my investing concerns, instead of its capital usage efficiency and profit maximisation.

Cheers,
Kenneth KOH
 
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Personally I think this crisis will surprise alot of us. I havent seen many here go indepth as to the roots of this crisis and explore the deeper cause/effects involved - which is understandable as this is a property investment and not a economics forum. But rather then asking u to trust some stranger on a forum, I think it is better for one to do their own reading and make up their minds - after all it is ur money/investments this will impact.

Some good links to start off -

calculated risk blog (VERY good)
www.rgemonitor.com (VERY good)
www.minyanville.com (
sudden debt blog (VERY good indepth articles on credit derivatives role in this crisis)
naked capitalism blog
http://www.piaohaoreport.sampasite.com/ (detailed Blog/Commentary on China Finance markets by a western professor teaching finance in Beijing)

Some of these guys were raising alarms are have made correct calls (particularly Nouriel Roubini) before any of this hit the main stream media on how this crisis has unfolded and I have found much of their material to be spot on.

Several points though (feel free to rebut if you like, I am not here to be right, but like you, to ensure that my investments stay green in the years ahead):

- As usual, the media have screwed up again. What is going on is NOT a SUB PRIME crisis in the US, it is a GLOBAL seizure in the credit markets. One only has to look at the LIBOR and the TED spread graphs (google them) to know whats going on is very serious and should not be brushed off lightly.

- Contrary to a popular myth, cutting rates will do NOTHING, I repeat, NOTHING, to _avert_ the crisis. What is going on is a SOLVENCY/Capital/Information deficiency crisis, NOT a liquidity crisis. The CBs can cut rates to 0 and it would do nothing. To understand why, google the expression "pushing on a string" in regards to monetary policy. For further confirmation, learn to read the slosh report (google it) put out by the US Fed.

- In regards to the decoupling thesis that I saw mentioned here, I disagree with it and urge you to re-examine it. China is still an economy primarily driven by exports to both US and Europe and relies on these industries to provide jobs. Some have compared the Chinese economy to an elephant riding on a bicycle and I agree - if it stops moving it will fall down hard.

Before anyone jumps on me - I will raise this point - China is now suffering badly from inflation. This inflation is contributed largely by the RMB peg to the USD (which largely nullifies their monetary policy tools) which for years have allowed the US for years to export their inflation to China. A revaluation of the RMB will ease this inflation, yet China continually digs its heels in against this - why ? I think the Chinese Gov knows that while domestic consumption has increased, it is nowhere near what is required to continue to maintain their growth momentum (i.e. keep the elephant on the bicycle) and so is doing everything SHORT (they are even using PRICE CONTROLS which never work !) of RMB revaluation (which will hit their export industries) to combat it.

In addition, NO ECONOMY can grow as hard and fast as China without accumulating weaknesses - these weaknesses are hidden while the growth is strong. But I think these weaknesses will get exposed when the tide goes out going forward in the future.

- In regards to how this will affect Australia property, I honestly do not know because I am a property investor newb (one reason why I am here and wrote a long *** post because I wanted to contribute something back into the community). But one fundamental question going forward that will have the most impact in on everyone's investment strategy is this - Will this crisis, combined with the Central Bank's efforts to fight it, result in inflation, deflation, or a combination of both, and in what time frames ? If you can answer these questions convincingly then the impact of this crisis on your investment strategy (i.e. degree of leverage) going forward will be clear and very different.

Anyway enough of me standing on the soap box, I will not lecture further and will encourage you to do your own research and reach your own opinion - do not just trust any guy on a forum. The only thing I will say is that while you should not adopt a doom/gloom attitude, you should not underestimate this crisis. And lastly do NOT just trust the main stream media/banking analysts (if these analysts were so good banks would not be in trouble like this in the first place !!!) but understand the issues yourself. I can raise so many instances of analysts at major institutions talking BS that I trust detailed commentary on blogs now more then forecasts provided by analysts.

Good luck all, and may all ur portfolios be much greener when this **** storm passes.
 
Personally I think this crisis will surprise alot of us. I havent seen many here go indepth as to the roots of this crisis and explore the deeper cause/effects involved - which is understandable as this is a property investment and not a economics forum. But rather then asking u to trust some stranger on a forum, I think it is better for one to do their own reading and make up their minds - after all it is ur money/investments this will impact.

Some good links to start off -

calculated risk blog (VERY good)
www.rgemonitor.com (VERY good)
www.minyanville.com (
sudden debt blog (VERY good indepth articles on credit derivatives role in this crisis)
naked capitalism blog
http://www.piaohaoreport.sampasite.com/ (detailed Blog/Commentary on China Finance markets by a western professor teaching finance in Beijing)

Some of these guys were raising alarms are have made correct calls (particularly Nouriel Roubini) before any of this hit the main stream media on how this crisis has unfolded and I have found much of their material to be spot on.

Several points though (feel free to rebut if you like, I am not here to be right, but like you, to ensure that my investments stay green in the years ahead):

- As usual, the media have screwed up again. What is going on is NOT a SUB PRIME crisis in the US, it is a GLOBAL seizure in the credit markets. One only has to look at the LIBOR and the TED spread graphs (google them) to know whats going on is very serious and should not be brushed off lightly.

- Contrary to a popular myth, cutting rates will do NOTHING, I repeat, NOTHING, to _avert_ the crisis. What is going on is a SOLVENCY/Capital/Information deficiency crisis, NOT a liquidity crisis. The CBs can cut rates to 0 and it would do nothing. To understand why, google the expression "pushing on a string" in regards to monetary policy. For further confirmation, learn to read the slosh report (google it) put out by the US Fed.

- In regards to the decoupling thesis that I saw mentioned here, I disagree with it and urge you to re-examine it. China is still an economy primarily driven by exports to both US and Europe and relies on these industries to provide jobs. Some have compared the Chinese economy to an elephant riding on a bicycle and I agree - if it stops moving it will fall down hard.

Before anyone jumps on me - I will raise this point - China is now suffering badly from inflation. This inflation is contributed largely by the RMB peg to the USD (which largely nullifies their monetary policy tools) which for years have allowed the US for years to export their inflation to China. A revaluation of the RMB will ease this inflation, yet China continually digs its heels in against this - why ? I think the Chinese Gov knows that while domestic consumption has increased, it is nowhere near what is required to continue to maintain their growth momentum (i.e. keep the elephant on the bicycle) and so is doing everything SHORT (they are even using PRICE CONTROLS which never work !) of RMB revaluation (which will hit their export industries) to combat it.

In addition, NO ECONOMY can grow as hard and fast as China without accumulating weaknesses - these weaknesses are hidden while the growth is strong. But I think these weaknesses will get exposed when the tide goes out going forward in the future.

- In regards to how this will affect Australia property, I honestly do not know because I am a property investor newb (one reason why I am here and wrote a long *** post because I wanted to contribute something back into the community). But one fundamental question going forward that will have the most impact in on everyone's investment strategy is this - Will this crisis, combined with the Central Bank's efforts to fight it, result in inflation, deflation, or a combination of both, and in what time frames ? If you can answer these questions convincingly then the impact of this crisis on your investment strategy (i.e. degree of leverage) going forward will be clear and very different.

Anyway enough of me standing on the soap box, I will not lecture further and will encourage you to do your own research and reach your own opinion - do not just trust any guy on a forum. The only thing I will say is that while you should not adopt a doom/gloom attitude, you should not underestimate this crisis. And lastly do NOT just trust the main stream media/banking analysts (if these analysts were so good banks would not be in trouble like this in the first place !!!) but understand the issues yourself. I can raise so many instances of analysts at major institutions talking BS that I trust detailed commentary on blogs now more then forecasts provided by analysts.

Good luck all, and may all ur portfolios be much greener when this **** storm passes.
 
Personally I think this crisis will surprise alot of us. I havent seen many here go indepth as to the roots of this crisis and explore the deeper cause/effects involved - which is understandable as this is a property investment and not a economics forum. But rather then asking u to trust some stranger on a forum, I think it is better for one to do their own reading and make up their minds - after all it is ur money/investments this will impact.

Some good links to start off -

calculated risk blog (VERY good)
www.rgemonitor.com (VERY good)
www.minyanville.com (
sudden debt blog (VERY good indepth articles on credit derivatives role in this crisis)
naked capitalism blog
http://www.piaohaoreport.sampasite.com/ (detailed Blog/Commentary on China Finance markets by a western professor teaching finance in Beijing)

Some of these guys were raising alarms are have made correct calls (particularly Nouriel Roubini) before any of this hit the main stream media on how this crisis has unfolded and I have found much of their material to be spot on.
.
**********************
Dear Miku,

Very well said indeed!

Thank you for sharing your views and reading references

Cheers,
Kenneth KOH
 
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- As usual, the media have screwed up again. What is going on is NOT a SUB PRIME crisis in the US, it is a GLOBAL seizure in the credit markets. One only has to look at the LIBOR and the TED spread graphs (google them) to know whats going on is very serious and should not be brushed off lightly.

- Contrary to a popular myth, cutting rates will do NOTHING, I repeat, NOTHING, to _avert_ the crisis. What is going on is a SOLVENCY/Capital/Information deficiency crisis, NOT a liquidity crisis. The CBs can cut rates to 0 and it would do nothing.

To understand why, google the expression "pushing on a string" in regards to monetary policy. For further confirmation, learn to read the slosh report (google it) put out by the US Fed.
.
+++++++++++++++++++++++++++++++
Dear Miku,

1. Based on your own research/reading and informed views, what then is the proposed workable solution to resolve the "GLOBAL seizure in the credit markets", apart from reducing the prevailing interest rate?

2. Both the American Federal Reserve Board and the Bank of England have resorted to cutting down on their interest rate as the proposed solution. Are you then suggesting that these 2 internationally well-respected authorities are actually "barking at the wrong trees" instead?

3. Looking forward to learning further from you, please.

4. Thank you.

regards,
Kenneth KOH
 
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- In regards to the decoupling thesis that I saw mentioned here, I disagree with it and urge you to re-examine it. China is still an economy primarily driven by exports to both US and Europe and relies on these industries to provide jobs. Some have compared the Chinese economy to an elephant riding on a bicycle and I agree - if it stops moving it will fall down hard.

Before anyone jumps on me - I will raise this point - China is now suffering badly from inflation. This inflation is contributed largely by the RMB peg to the USD (which largely nullifies their monetary policy tools) which for years have allowed the US for years to export their inflation to China. A revaluation of the RMB will ease this inflation, yet China continually digs its heels in against this - why ? I think the Chinese Gov knows that while domestic consumption has increased, it is nowhere near what is required to continue to maintain their growth momentum (i.e. keep the elephant on the bicycle) and so is doing everything SHORT (they are even using PRICE CONTROLS which never work !) of RMB revaluation (which will hit their export industries) to combat it.

In addition, NO ECONOMY can grow as hard and fast as China without accumulating weaknesses - these weaknesses are hidden while the growth is strong. But I think these weaknesses will get exposed when the tide goes out going forward in the future.
*************************
Dear Miku,

1. I agree with you that the decoupling theory may not apply well at this point in time, given the present sheer difference in size of the American and Chinese Economies as well as the fact that the Chinese Economy is primarily export-driven largely, at this point in time.

2. I fully agree with you regarding the present over-heating of the Chinese Economy, based on similar experience and observations made regarding Singapore's own rapid economic development process from early 1970s-1984 period.

3. I further believe that out of national pride, the Chinese Govt will only publicly disclose their internal problems/economic weaknesses after the 2008 Beijing Olypmic Games and not before that. In the mean-time, they are likely to use their political will to suppress such economic weaknesses as much as possible, as what they have been doing presently.

4. Consequently, I expect the Chinese Govt to open up on its own "can of worms" regarding its own overheating Chinese Economy after the 2008 Olympic Games and this together with the significant slowing down Amercian Economy, the present global credit crunch, the challenge of the retiring babyboomer generation etc will all snow-ball into a major tumultous global financial crises subsequently. These are highly exciting and challenging times that we can all expect to see, post-2008 Beijing Olympics Games era.

Cheers,
Kenneth KOH
 
Kenneth,

The US Govt is keeping the public in the dark and have done for decades.

What makes you think the Chinese Govt will be any different? Olympic games or not.

They will both hide the truth until there is absolutuely no other way they can hide it, and then they will still "spin" the hell out of it.
 
Kenneth,

The US Govt is keeping the public in the dark and have done for decades.

What makes you think the Chinese Govt will be any different? Olympic games or not.

They will both hide the truth until there is absolutuely no other way they can hide it, and then they will still "spin" the hell out of it.
*******************
Dear LAAussie,

1. I am not born as an American nor do I presently fully understand the American culture well enough, to fully appreciate the US Govt's thinking/"nuances" at this point in time, so as to be able to accurately tell when the US Govt is actually telling and not telling the truth to the American people.

2. As far as I am concerned, I know that the way/realities of politics for China and America (and for Australia, for that matter) as well as for its aspiring politicans are very different.

3. In the Chinese culture, there is this belief that certain people are given the "special mandate to rule" over the masses, as given by Heaven/God as far as the past Chinese Dynasties/emperors are concerned.

4. How far has this basic Chinese thinking changed over time in this modern day China, I am not sure myself, at this point in time.

5. The Chinese politicians can try to suppress and/or spin their stories as they like but the real Truth will be revealed for all to see, in due course, as decided by Heaven/God, as far as the Chinese people are concerned. Most of them will have known/learnt this "fact" from their own Chinese culture and history.

6. From my own limited understanding as an overseas-born Chinese, the 2008 Olympics Games is China's way of celebrating its various national achievements to date. It is also a matter of national pride to openly show-case itself publicly for the first time to the entire world as the host for the Olympic Games as well as to subtly "tell"/"caution" the rest of the world regarding how well China has arrived at the world'scene today.

7. Consequently, all socio-economic weaknesses or hiccups within China would be suppressed at all costs until the Olympic Games Celebrations is officially over .

8. Subsequently, when China next begins its new era of national/social-econoimic development, it will first highlight and publicise out all its existing specific weaknesses in the country where new reforms are required, to the Chinese people first;- before the Chinese govt will mebark on its next stage of the social-economic reforms and national development.

9. This is what I believe to be the Chinese Govt's way of doing things, at this point in time.

Cheers,
Kenneth KOH
 
Hi Miku,

I am of similar opinion. This is not sub-prime. It is about massive levels of DEBT and RISK. Sub-prime was only one type of risky debt that exploded (or did it implode?). There are others waiting to go off soon, Centro highlighted another one.

I agree Kenneth, China cant keep subsidising oil, food etc and use fixed prices to try supress inflation indefinitely… So on the other side we have inflation bomb waiting to explode.

Here is a nice example:

1. A person leverages 100k at 50% lvr (total 200k) and puts in a fund. The person pays low rate..
2. That fund borrows at 50% lvr and puts into a company (total 400k). The fund pays a low rate.
3. The company borrows 50% lvr and buys an asset, a nice new building/road etc (total 800k). The company pays a low rate.
So that initial 100k in a relatively conservative growth strategy has ended up being leveraged at a ludacrious amount.

SUDDENLY, rates are on the rise. And why shouldn’t they be. Oil risen 500%, food few hundred percent, etc etc, inflation rising. Asset prices arent rising … Money is harder to come by ..

What happenes next? Well, I sure you can guess...
What happens when asset also falls by a mere 5% .. as they do from time-to-time??
Go on do the calculations. Its very interesting…

These debt bombs are everywhere at every level .. tread with care.
 
*******************
Dear LAAussie,

1. I am not born as an American nor do I presently fully understand the American culture well enough, to fully appreciate the US Govt's thinking/"nuances" at this point in time, so as to be able to accurately tell when the US Govt is actually telling and not telling the truth to the American people.

2. As far as I am concerned, I know that the way/realities of politics for China and America (and for Australia, for that matter) as well as for its aspiring politicans are very different.

3. In the Chinese culture, there is this belief that certain people are given the "special mandate to rule" over the masses, as given by Heaven/God as far as the past Chinese Dynasties/emperors are concerned.

4. How far has this basic Chinese thinking changed over time in this modern day China, I am not sure myself, at this point in time.

5. The Chinese politicians can try to suppress and/or spin their stories as they like but the real Truth will be revealed for all to see, in due course, as decided by Heaven/God, as far as the Chinese people are concerned. Most of them will have known/learnt this "fact" from their own Chinese culture and history.

6. From my own limited understanding as an overseas-born Chinese, the 2008 Olympics Games is China's way of celebrating its various national achievements to date. It is also a matter of national pride to openly show-case itself publicly for the first time to the entire world as the host for the Olympic Games as well as to subtly "tell"/"caution" the rest of the world regarding how well China has arrived at the world'scene today.

7. Consequently, all socio-economic weaknesses or hiccups within China would be suppressed at all costs until the Olympic Games Celebrations is officially over .

8. Subsequently, when China next begins its new era of national/social-econoimic development, it will first highlight and publicise out all its existing specific weaknesses in the country where new reforms are required, to the Chinese people first;- before the Chinese govt will mebark on its next stage of the social-economic reforms and national development.

9. This is what I believe to be the Chinese Govt's way of doing things, at this point in time.

Cheers,
Kenneth KOH

I can only say that I hope all you believe comes true, Kenneth.
 
Kenneth

I think you are overstating the impact the Govt has on the housing market.
******************
Dear Tubs,

1. What has happened in the USA housing market can also happen in Australia in the near future, if the relevant authorities here similarly fail to closely monitor and properly regulate the local housing industry and its present related land/ housing supply-demand/affordability related issues in Australia, on their present duty watch.

2. AlexLee has criticised Alan Greenspan, the ex-American Federal Reserve Chairman has been largely responsible for causing the present biggest housing bubble in the US history, to date.

3. Both the US Treasury and the US Govt have reportedly both failed to properly regulate the sub-prime mortgage lending practices in the past and failed to act decisively in a timely manner to contain the sub-prime mortgage crisis at its onset, resulting in this crisis fast spreading into the global credit crunch contagion crisis.

4. Likewise, the interest rate in Australia has previously shot up to 19%-20% in 1989, to be followed by the 1991 Recession that "Australia needs to have" under Paul Keating's ALP Govt before. Some of the investors have even lost their entire property portfolio during those unfortunate times which they have tediously and painfully built up over the previous few property cycles.

5. Will similar bad fortunes befall on Australia again under Kevin Rudd's new ALP Federal Govt office term again this time round? Will the RBA led by Glenn Steven, able to steer the Australian Economy relatively unscathed through the various major global financial crises, as his precedessor, Ian MacFarlance has skilfully and successfully done so previously?

6. Only TIME will tell.

7. This is despite Australia presently having a good track record of continually enjoying its prolonged economic prosperity over the last 16 years.


Cheers,
Kenneth KOH
 
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Hi Kenneth,


The problem with sub-prime market was not lack of regulation, the lending market was, and remains, highly regulated in the US. It was a combination of institutional investors purchasing securities that were unsafe, unscupulous lenders and brokers and a population with excessive personal debt. To a lesser extent, the third condition exists in Australia, but lending practices are a lot more sensible here than in the US (which is evidenced by our low foreclosure rates) and investors remain very wary of non-conforming mortgage securities, which means that there will not be sufficient amount of money available to make non-conforming a large part of the lending market as was the case in the United States. Therefore, while we are not immune to problems in the housing market, it is hard to see the same problems occuring here as have been happening in the US.

Kind Regards,

Cameron Perry
Perry Financial Strategies
 
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Hi Kenneth,

The problem with sub-prime market was not lack of regulation, the lending market was, and remains, highly regulated in the US. It was a combination of institutional investors purchasing securities that were unsafe, unscupulous lenders and brokers and a population with excessive personal debt.

Cameron Perry
Perry Financial Strategies
www.perryfinance.com
**********************
Dear Cameron,

1. How then do you explain why there is an immediate need for Henry Paulson and the US Govt to quickly rush in a few new legislations now in order to protect the mortgagees and the present mortgage lending market and not well before that?

2. Could they have been more pro-active in identifying the existing weakenesses in the present regulatory framework against the changing market demands, to proactively formulate and pass these same legislations a few years before the sub-prime credit crisis officially exploded?

Cheers,
Kenneth KOH
 
Regulation was supposed to be less 'needed' because the US was supposed to have things like independent auditors, independent courts (shareholder lawsuits!), independent rating agencies (S&P, Fitch, Moodys) and independent analysts to make sure the companies were managing their businesses safely.

Supposedly companies taking too much risk would have had their shareprices kicked down.

The problem was, as usual profit-motivated creativity went way beyond what analysts, ratings agencies, etc could get their head around. Combined with good conditions that numbed people to the possibility that things might go bad. Things started happening at the fringes (e.g. many US states do not require any qualifications for mortgage brokers) and before the authorities could make up their minds about whether to regulate more (which is against the general US principle) you already had plenty of excesses.

It's happened before and will happen again.
Alex
 
Dear Alex,

1. How's about publlic accountability by the US listed companies?

2. In the US, I observe that although the companies can go bust, their CEOs will continue to earn multi-million dollars annual salary payment, either in their existing company or/and new companies that employs them subsequently.

3. Likewise in Australia, when RAM was sheared and is now bought over by WESTPAC, its founder has become an multi-millionaire overnight following RAM listing on the ASX in July 2007.

4. How are such CEOs/directors "blacklisted" in any way so that new emerging companies could avoid their future highly paid employment?

5. Looking forward to learning from you further, please.

6. Thank you.

Cheers,
Kenneth KOH
 
US Japan Comparisons

http://seattlepi.nwsource.com/opinion/343991_japanonline19.html

With four-fifths of Japanese lending ultimately related to property, Americans were incredulous that banks had been foolish enough to lend against collateral for which the value could go down as up; in the United States, they said, banks lent against cash flow, the best gauge of a borrower's ability to repay a debt.

Japan got into the mess by assuming land prices only rose (in cities they have since fallen by about 70 percent). But American financiers have made the same silly assumptions, gaily advancing money to "ninjas": people with no income, no job and no assets. Even if some local property markets tanked, they figured, a nationwide bust was almost unthinkable. They were very wrong.

Will it affect Australia? We have a debt fueled property boom based on the belief that land prices only rise. It will probably catch up with us here as well.

Debt markets are very global now and will affect local credit markets - especially if you are a small economy that consumes more than it produces year in year out.
 
1. How's about publlic accountability by the US listed companies?

2. In the US, I observe that although the companies can go bust, their CEOs will continue to earn multi-million dollars annual salary payment, either in their existing company or/and new companies that employs them subsequently.

3. Likewise in Australia, when RAM was sheared and is now bought over by WESTPAC, its founder has become an multi-millionaire overnight following RAM listing on the ASX in July 2007.

4. How are such CEOs/directors "blacklisted" in any way so that new emerging companies could avoid their future highly paid employment?

5. Looking forward to learning from you further, please.

6. Thank you.

Cheers,
Kenneth KOH

The lawsuits are coming.

RAMS was different. The founder SOLD shares in a listing, and then the company tanked. That's more good timing.

There isn't any legal stigma for these directors, unless they are convicted of fraud. But if I'm Chuck Prince and I just got paid $50m, who cares? I'll just go find a few of my buddies and set up a VC or private equity fund.
Alex
 
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