Global Financial Crisis

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Comment by Grace Boge on December 2, 2008 at 11:42am

I believe Chinese people understand the fundamental notion of money itself and built their philosophy of investment and financial system, despite the fact that decades ago it was a very capitalism unfriendly regime under the communism ideology, on the deep understanding of money, debt and interest accrued, etc.
No other nation like us encourages people to spend the money they don’t have it today and spend what they assume will get in future. One of the key solutions to solve this crisis and restore the confidence in the market is to see that consumer start to live within their means and to assume reasonable leverage / good debt that they can afford to pay back. Otherwise, we are heading the direction where the debt will put us out of competition.
Imagine that, after we achieve the oil independence, we become capital dependent on every of those creditors and the gain we create can only keep up to pay the interest part of the debt.

Comment by Ted Fine on November 3, 2008 at 9:17am

I'm sure we're in for a very bad time before this starts to turn around, but I do believe that because of the unique way we operate in this country (not all good, of course) we will always have the most entrepeneur-friendly business environment in the world. That will continue to attract investment and be an engine for internal growth. How long before that engine gains traction???????????

Comment by CREOPoint Managing Editor on September 30, 2008 at 10:50am

CREOPoint Editor's Note: The content we select for this group will NOT be a single point of view that everything is out of control. But we may have a fair amount of 'bad news' to report for a time. Our focus is on sharing information and perspective to help you size up what is happening around the world so you can decide for yourself how best to proceed in challenging times. Rest assured that as soon as there is either good news to share, a reversal of trends, or a sense of stability, we will be happy to 'declare victory and move on' to the opportunity space we all so dearly love...

Comment by Shekhar Shah on September 24, 2008 at 2:30pm

I agree with the sentiment that America is selling itself to the rest of the world. However, where I disagree is quite simple: we already sold ourselves several years back and are just "faking" another sale attempt. Foreign governments have been long time creditors of the US Treasury and this will never change. As a country, we rely too much on debt and have never learned our lessons that you need strong quality assets. The current $700 billion bailout is just another attempt to make sure that the foreign creditors dont lose anymore money.
It will be very interesting to see what comes out of the Congressional hearings today.

Comment by Pierre Michel on September 22, 2008 at 10:45pm

The article below is a good example of extremely poor crisis mangment

Executives at the state-owned German bank KfW may face criminal charges after the bank seemingly lost 350 million euros in a failed swap deal with Lehman Brothers, The Telegraph reported.

KfW, which the Telegraph said has been dubbed “Germany’s dumbest bank” by the press, transferred the money just hours before the troubled U.S. firm declared insolvency. The automated transfer was never followed by the agreed payment of $500 million in return as other banks were hastily withdrawing their money out of Lehman.

The German bank has now hired a law firm to investigate the possibilities of initiating criminal charges against its two board members who are seen as responsible for not preventing the transfer, The Telegraph said.

Comment by Pierre Michel on September 22, 2008 at 10:39pm

I think China is a good example of a sensible way of a sensible financial policy. They have consequently built up a strong asset base, which they are now using to counteract the effects of the financial crisis. In additions to the measures in the article below, in order to give support to the stock market, Chinese government entities are now buying Chinese stocks.

Please also see the article below:

BEIJING, Sept. 15 (Xinhua) -- China's central bank said on Monday it would reduce the benchmark loan interest rate and the reserve requirement ratio for commercial banks to ensure a steady and rapid economic growth.

The benchmark interest rate for one year yuan denominated loans will be adjusted down 0.27 percentage points from Tuesday, its first downward movement since October 2004.

In addition, the ratio of deposit lenders are required to set aside will be down 1 percentage point from Sept. 25, the People's Bank of China said.

However, the country's major lenders will be exempt from the reserve requirement ratio adjustment. They include the Industrial and Commercial Bank of China, the Agricultural Bank of China, the Bank of China, the China Construction Bank, the Bank of Communications and the Postal Savings Bank of China.

The reserve requirement ratio would be reduced by 2 percentage points for local financing institutions in areas badly hit by the May 12 Wenchuan earthquake, the central bank said.

After adjustment, the interest rate for one-year loans in the Chinese currency will be 7.20 percent. The overall reserve requirement ratio will be 16.5 percent, down from a record 17.5 percent after five consecutive increases this year.

The move reflected the government's concern over the slowing economy and was a result of long-time consideration, said Zhuang Jian, a senior economist with the Asian Development Bank Resident Mission in China.

"It showed the government was eager to maintain the economic growth as enterprises faced difficulties, especially funding strain. The eased inflationary pressure also provided more room and time for the adjustment."

China reported last week its consumer price index in August rose 4.9 percent from a year ago, down from the 12-year high of 8.7 percent in February and the lowest since July 2007.

There had been long debate in China on whether the government should loosen its tight monetary policy as its economy slowed, Zhuang said.

The country started to adopt a tight monetary policy from the second half of 2007 to curb inflation. Its gross domestic output posted a year-on-year growth of 10.4 percent in the first half of 2008, 1.8 percentage points lower from the same period last year.

"The news would bolster investor confidence in China's economy and somewhat offset the impact of the bad news in the U.S.," Tang Min, the China Development Research Foundation deputy secretary, told Xinhua.

He was referring to the Sunday reports that U.S. investment bank Lehman Brothers had filed for bankruptcy protection while its rival Merrill Lynch agreed to be taken over.

"The central bank gave a big present," said Tang. "The lending rate was cut by 1 percentage point this time, much larger than the usual 0.5 or 0.25 percentage points in previous adjustments."

However, Tang said officials still intended to keep liquidity in check as the deposit interest rate would stay the same.

Zhuang told Xinhua China was prudent in the policy adjustment. "The government still placed priority on controlling inflation as the deposit reserve ratio was not lowered for the top-four lenders."

That action would also give small- and mid-sized banks an advantage in extending loans and benefit small enterprises, which were the main customers of those banks and had suffered most in the past quarters, he said.

China's gross domestic product had decelerated for four consecutive quarters through June. Its export growth slowed 5.3 percentage points year on year to 22.4 percent in the first eight months of this year.

The central bank said its move was to "solve prominent problems in the current economic operation, implement the principle of giving different policies for different needs and optimizing the economic structure, and to ensure a steady, rapid and sustained development."

The adjustment would show its effect in the next two to three months and further actions would depend on how the economy reacted, Zhuang said.

Comment by Thad W. Seligman on September 22, 2008 at 3:21pm

Mr. Lim is correct. America is selling itself to the world bit by bit by losing the ability to make sound decisions for our own best interests because of how our dicisions might impact foreign bondholders. If we don't learn to put our greed aside and begin to operate from a strong asset base rather than a position of debt then what we are experiencing today is only the beginning.

Comment by Jean-Claude Goldenstein on September 20, 2008 at 2:39pm

Good suggestions for a broader recovery in Robert Shiller's new book "How today's Global financial crisis happened and what to do about it"

Comment by Sara Chesters on September 18, 2008 at 3:07pm

It's interesting that the FSA in the UK took action to prohibit shorting, at least for the near future, while we're still thinking about it and sitting on the proverbial fence. It's never possible to get it right 100% of the time but in moments of crisis a decisive set of actions and confident decision making goes a long way.

Comment by Lawrence Lim on September 16, 2008 at 11:34pm

I am not surprised that we are facing this very difficult problem. The Americans have been supporting their high standard of living on borrowed money. Unless there is a dramatic turnaround, many other major American corporations will end up in the hands of foreigners. It will also hampers America who will be ineffective to carry out foreign policies as they have to consider the repercussions of foreign bond-holders and corporation owners which are non-Americans.

America has to get out of their debt. Reduce the national debt and be a "Truly strong and free Nation" again.

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