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谢国忠

谢国忠博客:只说出心中真相

 
 
 

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麻省理工学院经济学博士

个性介绍: 1960年出生于上海,1983年毕业于上海同济大学路桥系,1987年获麻省理工学院土木工程学硕士,1990年获麻省理工学院经济学博士。同年加入世界银行,担任经济分析员。在世行的五年时间,谢国忠所参与的项目涉及拉美、南亚及东亚地区,并负责处理该银行于印尼的工商业发展项目,以及其他亚太地区国家的电讯及电力发展项目。1995年,加入新加坡的Macquarie Bank,担任企业财务部的联席董事。1997年加入摩根士丹利,任亚太区经济学家,2006年9月辞去该职务。

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is uncle sam embracing market again?   

2008-09-16 21:23:54|  分类: 默认分类 |  标签: |举报 |字号 订阅

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Is Uncle Sam embracing market again? /谢国忠


TheUS government is trying to draw a line at Lehman on bailouts. If itsticks with its new attitude, it marks the beginning of a financialstorm. The one-year long crisis has been slow motion, because therehasn't been deleveraging. The financial sector debt rose from $14.8trillion in 2Q07 to $15.9 trillion in 1Q08. A normal financial crisismeans deleveraging in the financial system. The US gov guarantee hasallowed the failing financial institutions to hold onto their assets atfictitious valuation. If deleveraging really happens in the US, we mustask three questions: liquidity for unwinding Lehman, re-pricing of riskassets, and a severe economic downturn.



The marketstorm now is really about liquidity worry over unwinding $600 bn ofLehman's assets and possibly AIG's too. I don't think that theunwinding will take down everyone. The Fed has expanded its role of thelender of the last resort so much that it is hard to see that liquidityproblems could bring down the system like one century ago. But, thefear factor will stick with us.



Asset repricing willcast doubts on solvency of several financial institutions. If Lehmansells its CDO's and other toxic assets, the prices will be marketprices, possibly quite close to zero. That could force otherinstitutions to mark to market. How many institutions would fail? Wedon't know. Also, $70 trillion CDS's out there need to be repriced. IfLehman bondholders take a steep haircut, it could break the phalanx offinancial institutions that are locked together by the market.



Assetre-pricing would have a big effect on the economy. Cheap credit hasfueled the US's consumption. Credit has been cheap because the Fed hasbeen easy and Wall Street has created hard-to-understand products tounder-price the risk. The re-pricing means a big reduction in credit tothe US's households. The US economy could go through what happened inAsia one decade ago: 4-5% contraction in GDP.



The US'sfinancial system as a whole may have negative equity, I believe. If itsleverage assets depreciate 10%, it doesn't have equity anymore. TheUS's financial system is too leveraged to sustain a significant drop inasset prices. The financial sector's leverage is 137% of GDP comparedin 2007 to 100% five years ago and 70% ten years ago. We can argue ifleverage should go back to 100% or 70%. The figure is probably betweenthe two. The amount of deleveraging, hence, is over $6 trillion, tentimes Lehman's unwinding. That much deleveraging could mean a majorreduction in asset prices. But, the US's financial system is tooleveraged to sustain a major reduction in asset prices. It may mean thewhole financial system is bankrupt.



There are two waysto deal with a financial crisis. The right approach is to let marketclear and establish liquid market for bad assets. Markets and economiesbottom quickly. That is what happened in Asia ten years ago. Thealternative is to hoard bad assets and to allow financial institutionsrecover slowly from accumulating profits to offset the hidden losses.So far, the US has been on the second path like Japan 15 years ago. Thedifference is that the US has inflation and Japan deflation due to theUS's trade deficit or low savings rate.



AllowingLehman to fail seems to indicate that the US government wants a marketsolution. I'm not convinced. The amount of deleveraging is too big formarket to swallow. The US gov may be back to the bailout circuit again.Would they let AIG fail? If they bail out AIG, we are back to where itwas.



The bottom line: the only solution for the US isto print money to cover up liquidity problems at financial institutionsand let them sort out their losses overtime. The market implicationsare sell dollar, buy gold.



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