The problem for Italy and the global financial system is serious.
http://money.cnn.com/2011/11/09/news/international/italy_crisis_bail/index.htm?section=money_topstories&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_topstories+%28Top+Stories%29
http://money.cnn.com/2011/11/09/news/international/italy_crisis_bail/index.htm?section=money_topstories&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_topstories+%28Top+Stories%29
9 comments:
I strongly believe that Italy is not the problem. It is the financial system that allows speculators to speculate on sovereign debt that is causing the probelm.
Those speculators simply move from Greece to Italy. They have made a big killing in Greece and leave Greek economy in total destruction and now they are targeting Italy.
Italian debt is not a new phenomenon. It has been like that for ages. If there is no concerted attack on Italian debt, Italian can keep cruising on their debt as Italy has a lot of grey economy from cottage industries. What the Italian Government needs to do is to find out who are the owners of these industries and tax them accordingly to generate revenue but the Italian Government needs time to plan and implement that.
The other way to fend off these attackers is to have enough funds to keep purchasing Italian bonds by European Governments. Sooner or later the bond attackers have to suqare their positions without their pants. EU leaders missed the opportunity to get G20 leaders' help to increase EU's fund to purchase bonds because they are too bloody proud.
This financial disaster happened in Asia in 1998. The western economies thought that this will never happen to them and never do anything to prevent that from happening again. In fact, their banks benefited from Asian miseries at that time.
Italy too big to fail, so do Spain, Greece, Ireland, Portugal and the list goes on. In short, everyone in Euro land is too big to fail, becos everyone all want to have their cake and eat it.
You go work out the maths, is it possible? Who is willing to pay for their bill? The angmos are now looking at China, India and other emerging nations. So now the poor are expecting to bailout the rich. Have you hear an even more ridiculous situation than we are in now?
Ok, even if China is willing to fork out their trillion dollars reserve to save their former imperial enemies, they are gonna ask what they are getting in return?
Being the third largest Euro economy, maybe Italy is too big to let her fail also.
But news report said there is just not enough dough to spread around.
Proper capitalism is to let underwater and failing countries / companies / people fail and go bust. Proper capitalism means letting prices find their levels thru open-market system, both long and short, bulls and bears.
Not using taxpayer money to bail out things that are not tenable, not sustainable.
Italy in the past could always devalue its Lira. In fact in such a situation, the market will devalue the Lira for Italy. This forces Italians to tighten their belts thru market forces. And also makes their goods and services more competitive. Allowing them chances to muddle through, find their footing and to recover thru economic growth.
This is the exact same problem with Greece and other uncompetitive, not growing, large debt EU countries. The common currency Euro is too expensive for these countries, they are not able to improve the competitiveness of the economy, not able to grow their economy by having such an expensive currency. Without growing their GDP, they have no hope of earning the money in order to pay off their debts and bailout money. Even if Greece don't collapse today, 6 months down the road, they will inform you that they need even more money as they are not earning anything.
It's exactly like keep on bailing out a relative who is unable to get a job, but needs to buy 4D, Toto and go to see doctor. How can he ever pay back his debts and bailout loans?? He will become permanent dependant. Now replace relative with a stranger --- how long will you be willing to keep on bailing him out??
China and Asian countries can help provided the money is just given away. It can be used to buy profitable companies that are state owned. After all in 1998, also same what the western companies buying up all the cheap assets in Asia mah
Technically nothing should be too big to fail under pure capitalism regime.
With hindsight wisdom, since demise of Bretton Woods System (hence proliferation of fiat money via floating exchange rate regime), I have learnt that Anglo-Saxon capitalism model is severely flawed. Some glamorous economic theories that we learnt in school are nothing but false masquerades.
Asia need capitalism model which model closely to Weberian philosophy (which stressed on good virtues that can be found in early industrialization age).
Asia has to pursue a prudent and discipline economy, which focuses on ‘balancing their books‘ via delicate control on both fiscal and monetary policies.
Economy can only grow stronger if we re-focus back on technical / engineering innovation, R&D on new products etc. Banks and financial conglomerates ALONE should NOT continue to take the centre stage in our modern economy.
Hard decisions have to be adopted by courageous political leaders to acknowledge and solve various underlying root problems:
- excessive ‘short-termism’ and risk taking behavior
- over-consumption
- under-saving
- under-investment
- under-production and technical innovation etc
No point to erect costly corporate governance and controls like SOX, Basel Standards, Risk Based Control or Corporate Social Responsible (CSR) Reporting etc if the real root causes are NOT solved heads-on.
Can the powerful policymakers in Euro and U.S. start to focus on solving the real issues please?
Lip Wee
The fund managers who bet against European bonds suffered heavy losses in the last few months. Now they are hoping EU will go down by the end of November in order for them to recover their losses. If that does not happen, you will have many MF Global cases by early next year and stocks will rally.
Judging by Chinese President Hu Jin Tao's comment that European countries have enough fire power to resolve their own problems, it is better to stay away from fund managers like MF Global.
Maybe the best solution is to let Greece, Italy, and maybe Spain to leave the Euro zone, and then France and Germany to bail out their own Banks involved in the mess.
Greece may be playing the opportunist game card, get the bail out billions first, then declare her decision to quit, and has a full haircut.
When these countries get on their feet, they could join back later.
But then, nobody would lend them money to recover their economies.
But their people are wealthy, esp the Italians, who have a lot of old wealth, which their churchmouse Govts could tap for help.
Asia recovered from AFC in 97/98 becoz we let underwater / unprofitable banks and companies go bankrupt. Even some Asian sovereign bonds also underwent restructuring and semi-defaults.
Any bailout money from IMF, ADB, foreign investors etc. went into the remaining banks or companies or Asian countries that had potential of recovering. And not into the hopeless entities which were let to fail.
Also, very important, asian currencies were allowed to depreciate, making asian goods & services more competitive. E.g. SGD went from 1.4 to 2.3 against USD, a -40% depreciation.
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