Thursday, September 18, 2008

Views of the U.S. from Abroad

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I wrote yesterday [An Ugly Close]

We're going to be in intensive care for a while. Thankfully, even at our reduced level of consumption the rest of the world still "needs" us, so they will hopefully continue to fund our consumption lifestyle (debt). But I can only imagine the amount of trust has fallen off the cliff as the onion is peeled back layer by layer.

Some pieces in the NYTimes in response to the world view of the current "safe" United States of Subprime. Keep in mind we lectured Asian countries throughout the late 90s when they went through their crisis moments "let the free market rule!" We are hypocrites. It does matter how we are viewed... because as debt addicts we need the world to buy our Treasuries each and every month so we can consume. Since we're technically broke.

We have a leadership deficit - all our decisions are based on 4-6 year election cycles. By 2 polarized parties. For the benefit of those who "pay" to get their way. As with all things the (bad) decisions are cummulative. We are distracted by talk of pigs and lipstick. Only in crisis do they even bother with the economy - after all it's not sensationalist and interesting to most. And so after year upon year of this situation - we finally get where we cannot kick the can much farther - see there is a wall up ahead.... we seem to be running head first into it. I say these things not out of spite but sadness and this is the direction we've chosen and no one seems to be willing to stand up to fix it...

Worried customers in Singapore lined up on Wednesday outside the offices of A.I.G.’s life insurance subsidiary in Southeast Asia, A.I.A.

In Asia, the Bloom is Off the U.S. Rose

  • Tremors from Wall Street are rattling Asian confidence, leading many investors to question the wisdom of being invested in the United States to the tune of trillions of dollars. Asian investors were starting to show hesitation even before the financial earthquake of the last week. Now, a wariness toward the United States is setting in that is unprecedented in recent memory, reaching from central banks to industrial corporations, from hedge funds to the individuals who lined up here to withdraw money from the American International Group on Wednesday.
  • Asia’s savings have, in essence, bankrolled American spending for decades, and an Asian loss of confidence in American financial institutions and assets would have dire consequences for both the United States government and American taxpayers.
  • The potential for panic is stoked by Asian news organizations, which tend to focus more on business and economics than on politics, which can be touchy here. (wow business & economics?? boring subjects! how do they sell their news there? Wait - I'd be a star in Asia!)
  • The nonstop deluge of bad publicity for American investments seems to be seeping into the consciousnesses of the rich and middle class across Asia. “I do not believe in U.S. financial institutions anymore; I don’t think any U.S. bank is safe anymore,” said Wang Xiao-ning, a Hong Kong homemaker. Even after the Federal Reserve had taken control of A.I.G., she waited in line with dozens of other anxious policyholders at one of the insurer’s customer service centers for the chance to close her investment account.
  • Little-noticed data released by the Treasury Department on Tuesday showed that a sharp shift in international capital movements began in July. Private investors pulled a net $92.9 billion out of the United States, after putting $46.8 billion into American securities in June.
  • Many investors in Asia think that Asian economies will bounce back from the current global economic downturn faster than the American economy, said Henry Lee, the managing director of the Hendale Group, a well-known Hong Kong investment advisory firm. So they are putting their money in Asian companies. (wait, I've been sold the fact that AMERICA will bounce back first - because... because... well "we're #1!!" - funny how when you stick your head outside the U.S. punditry you hear different things. I guess I agree with the Asians more than the Americans - again whose problems would you want? A 12% GDP in China that could "plummet" to 7% with huge savings rates? Or this financial calamity with huge debt and unmitigated greed and lack of regulation that hurts the masses - I know, I know - "we're #1")
  • If cash is king during the current global financial crisis, then Asian governments and financial institutions are emperors. China’s central bank alone has $1.8 trillion in foreign reserves. Those reserves grew $280.6 billion in the first half of this year — a pace of $64 million an hour.
Really this is no different than our oil addiction. When you are an addict, whether it be money or oil - you are hostage to your dealers. Many speculate Paulson took action on Freddie and Fannie based on pressure from foreign governments who were getting worried, especially the Chinese
  • Foreign central banks cut back sharply on their purchases of Fannie Mae and Freddie Mac securities in July, a development that helped spur the U.S. government's bailout of the mortgage giants
  • The episode is a potent reminder of the United States' dependence on foreign investors to fund its trade deficit, analysts said, and reflects a pivotal shift from previous government interventions.
  • The report also showed that foreign central banks and private investors dumped $50 billion in securities issued by Fannie, Freddie and other housing agencies, such as the government-owned Ginnie Mae. Central banks in China and Russia in particular cut back on their purchases, analysts said.
  • Treasury Secretary Henry Paulson confirmed after the bailout that foreign investors' concerns were among the factors that prompted his actions.
  • The People's Bank of China, for example, holds roughly $440 billion in housing agency debt, according to some estimates, which makes up a significant portion of its $1.8 trillion in foreign reserves. (think about that for a moment)
Jim Jubak has a lengthy analysis in this article 'Feds Bailed out China, not US' - it is worth the read if you are into these things (i.e. things like selling your soul so you can pay your creditors)

Let's head over to Europe shall we? You know, that place sold to us as a backwater of socialism that treats its workers to cost of living wage increases that keep up with inflation (how shameful a practice! how do you maximize profits and shovel as much to the CEO suite with that sort of thinking?)

Abroad, Bailout is Seen as Free Market Detour
  • Is the United States no longer the global beacon of unfettered, free-market capitalism? In extending a last-minute $85 billion lifeline to A.I.G., the troubled insurer, Washington has not only turned away from decades of rhetoric about the virtues of the free market and the dangers of government intervention, it has also likely undercut future American efforts to promote such policies abroad.
  • I fear the government has passed the point of no return,” said Ron Chernow, a leading American financial historian. “We have the irony of a free-market administration doing things that the most liberal Democratic administration would never have been doing in its wildest dreams.” (again I think both parties are terrible and not very different from each other anymore, but can you imagine the uproar if a Democratic administration was doing these steps? Oh my gosh - we'd never hear the end of this for generations - how the Democrats turned America into a communist/socialist nation - thankfully its "small government" Republicans at the helm!)
  • ... has stunned even European policy makers accustomed to government intervention in the economy. “For opponents of free markets in Europe and elsewhere, this is a wonderful opportunity to invoke the American example,” said Mario Monti, the former antitrust chief at the European Commission. “They will say that even the standard-bearer of the market economy, the United States negates its fundamental principles in its behavior.”
  • In France, where the government has long supported the creation of national champions and worked actively to protect select companies from the threat of foreign takeover, politicians were quick to point out the paradox of what is essentially the nationalization of the largest American insurance company. “Today the actions of American policy makers illustrate the need for economic patriotism,” said Bernard Carayon, a lawmaker of President Nicolas Sarkozy’s center-right governing party, UMP. “I congratulate them.” (wow - just wow) For the “evangelists of the market this is a painful lesson,” he added. (I'd say)
  • In Asia, the Washington-led bailouts have stirred bitter memories of the very different approach the United States government and the International Monetary Fund pushed during the economic crises there a decade ago. When the I.M.F. pledged $20 billion to help South Korea survive the Asian financial crisis of the late 1990s, one of the conditions it imposed was that the Korean government allow ailing banks and other companies to collapse rather than bail them out ("it's good enough for you, but not good enough for us" policy) “Washington is following a different script this time.”
  • “This was an insurance company that wasn’t federally regulated,” said Gary Gensler, who served as a top official in the Treasury Department during the Clinton administration. “We’re in new territory,” Mr. Gensler added. “This is a paradigm shift.
Historic times. As your grandkids muddle through their 80% tax rate, they will be reading books about this era.

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