hair on the tip of an iceberg!!!!
Wednesday, March 19, 2008
ok im back.
so you guys must have heard stuffs abt the US economy downturn.
but half of you have no idea whats happening.
right??
intelligibly, some of you will go: "oh! its the sub prime thingy in US right?!"
*wears a smug look and thinks you have conquered the world*
reality is, thats just like a SINGLE hair found on the tip of an iceberg.
hahahaha.
so being kind, as i always am,
*glares ard and daring ppl to contradict*
i shall give yr a brief picture of stuffs.
yes..
it all started out with the decline of the US sub-prime mortgage market.
Q: "but what, in the name of my leg hair, is this sub-prime crisis?"
A: briefly speaking..
in 2004, when we were all still playing marbles..
wall street was thriving, and i/r was low, so borrowing money was cheap and banks were very willing to lend out money.
and they did.
big banks like HSBC, Citigrp -you name it- lent billions (BILLIONS - 9 zeros!) of dollars to ppl.
and sad to say, many of them are ppl with lousy/no credit ratings (which means they are
known to default on their payment)
so, there you have it, the term: subprime.
but it doesnt stop there.
banks are smart you see. we dont lend you money without benefiting ourselves.
these loans were "packaged" into debt securities.
securities such as
bonds and
debentures.
lazy to read?
ok. basically they are packaged into "I Owe You's" and treated as an investment, and banks earn revenues by charging at a rate above the peg.
see, its actually easy money for the banks.
but then!!
in 2005.
what happened??
(not SARS. haha. but nice try..)
rates started climbing.
and these "subprimers" cant afford to pay back their debts.
so how??
die lo!!
banks cui already.
Q: accountancy ppl *cough cough* will perhaps go:
"simple! we can just write them off as bad debts. case close! lets go slp now."
A: not so easy.
you see, financial institutes (hereby known as FI) "packaged" ALL their loans and debts and sold them in the marketplace.
by "ALL" i meant the good and bad loans are jumbled up tgt.
so theres no way they can work out the value of these bad debts.
Q: "so what, in the name of my armpit hair, is this fuss abt? its only in the USA right? if thats the case, i dont give a damn nose hair man!"
A: sadly. these "investments" were sold (and bought) from FI to FI, AROUND THE WORLD.
and now, they are starting to surface.
from northern rock to citigrp.... to merrill lynch.... and now to
CCC and bear stearns.
banks are starting to feel the impact of their "easy money".
i goped this from BBC:
Citigroup: $18bn
HSBC: $17bn
Merrill Lynch: $14.1bn
UBS: $18.4bn
Morgan Stanley $9.4bn
Credit Agricole: $5bn
Deutsche Bank: $3.2bn
Bank of America: $3bn
Barclays: $2.6bn
Royal Bank of Scotland: $2.6bn
Freddie Mac: $2bn
JP Morgan Chase: $3.2bn
Credit Suisse: $1.8bn
Wachovia: $1.1bn
IKB: $2.6bn
dont you think wachovia sounds funny?
hahahaha.
anyway.
you may have already heard that the federal reservce has been cutting rates.
this is an attempt to ease the economic tension, by aiding liquidity and to boost investors' confidence. but sad to say ppl are still not very convinced.
you see. just when you thought the storm has passed, bear stearns collapsed.
so ppl dont know when this crisis is gonna end.
Q: "what, in the name of my toe hair, is the federal reserve?"
A: the federal reserve (hereby known as the fed) is the central bank of USA, the equivalent of MAS in spore. their job is to make sure that the economy is growing at an acceptable rate by means of policies imposed.
Q: "what, in the name of my (curly) chest hair, is this rate that everyone is so fussed abt?"
A: its actually the rate that the fed charges other banks for, when they lend out money.
yes, banks DO borrow money from each other and this market (possibly worth trillions - 12 zeros!) is called the interbank market.
however since this sub prime problem surfaced, banks have restricted on their lendings.
why?
1. they want to know how much they have been exposed.
2. they dont know if the other party will have enough money to repay.
so the interbank market has dried up.
and this is where the fed and other central banks have pumped their money into.
Q: "and how, in the name of my backside hair, does cutting rates help?"
A: like i said, its the amt charged to banks. so the lower the rates, the cheaper it is to borrow.
and simple business knowledge dictates that when stuffs are cheaper you will buy it. and thats how the fed is trying to increase liquidity: by slashing rates.
Q: "oh. so cutting rates will solve the problem. then why wait? keep lowering lah! simple. lets go slp now."
A: yes, lowering rates will revive the interbank market and ease tension.
BUT. another problem will arise..
Q: "what? what?"
A: inflation. and of course, the greenback's (aka the USD or dollar) value will plunge.
so now.
its quite a dilemma for them.
on the left hand, we have the subprime crisis.
and on our right, we have inflation and other nonsense.
so its really abt sacrificing one for the other.
Q: "what abt s'pore? how badly are we hit?"
A: you see, these banks are not just tiny weeny banks the size of yr neightbour's aloe vera plant. we are talking about BIG banks here; banks worth more money than any of us can EVER earn in 4 lifetimes
multiplied tgt.
and they have branches everywhere; in spore as well.
so. its likely employees here may get the chop. but so far its been announced that we are safe. but you nvr know....
also, let take the STI as an example. it was almost peaking at 4,000 points in the nov-dec period last year.
but look at it now:
not even hitting 2,900.
(it was barely at 2,800 just 2 days ago, after news of CCC's collapse and bear stearn's "fire sale")
so thats a 1,300pt drop in 3months!
and like i said, the usd has since depreciated at a rate faster than you can say "hair-loss".
so sgd has appreciated significantly against the dollar.
indeed, if you have been tracking it.
it was ard 4600 last year. (1usd = 1.4600 sgd)
and its 3780 now. (1usd = 1.3780 sgd)
820 pips!!
mama mia!!
Q: "well thats good news isnt it? a stronger sgd will mean that we are stronger! we win! haha!! lets go slp now."
A: erm, its good in a shopping way. but it will also mean that our investments in usd are worth less.
also, our trading sectors will be affected. yes, being an import-minded nation a stronger sgd will benefit us (cheaper to buy other ppl's goods) but our export will suffer.
and this is exactly why china had been so reluctant to revalue the yuan. they are earning billions of dollars off the world just by keeping their currency cheap.
see china man are smart asses. eventhough they may not be very ethical sometimes. they DO know where to hit you where it hurts the most - yr wallet..
(this is basic KohPohTee econs and i wont delve deeper into it)
so its a very vicious cycle indeed.
Q: "and why, in the name of mr BUSH, are you telling me all these for?
A: well, im trying to prove the point that: you dont have to be working to be in touch with the world.
and yes..
im a big showoff.
hahahaha.
=X
guess i better stop here.
you know, actually i was intending to tell yr abt my day at the cmpb (central manpower base?) for my ns thingy. and how i was being diagnosed of some erm.. illness.
but the report on the fed meeting came out. (75 basis pt cut)
i was so depressed by it, and the fact that some of my friends can still be bothered by B ignoring A and whether or not B fancies A, that i decided to forego my initial plan.
so yeah.
NOW you know..
you can start showing off already.
hahahaha.
but obviously, what i said is REALLY just the tip of the iceberg. so you can imagine how much longer this will go if i explained everything out. and of course i will prolly take abt a day more to structure them out in an idiot-proof way.
also,
im losing blood for every letter i type here..
there bloody mosquitoes flying around!
and the itch in my legs are driving me nuts!
so yeah.
i guess its so long for now..
-bYe-
to: mel - as promised, you were mentioned. twice. haha.. =D
12:46 am
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