Wednesday, October 30, 2013

Cash In Hand

In the middle times of the Asian Financial Crisis, I arrived in Hong Kong for I had found my way.

It was just under a year since the Great Handing Over of Hong Kong to the bosom of the middle kingdom, and things were looking decidedly shaky in that little island in the South China Sea.

A few months after I arrived, the Hang Seng Index starting dropping suddenly. Nothing to do with me. It was under pressure from those fucking hedge funds (George Soros, etc...) who for some reason felt like taking immensely leveraged incremental profits by laying short trades in Hong Kong stocks.

The HKD would have to be unpegged from the USD in order to save the market, cried the Chicken Little hand-puppets of the hedge funds, the media.

This fight had started earlier, in 1997, but it was a poor effort in the Yen that triggered this more urgent one, which hit its peak velocity in August 1998.

And it was happening very quickly, like, REAL fast, and what if the ultra-laissez-faire government did nothing? Everyone knew was that the Yuan WAS going to be unpegged from the USD any day now, then for certain the HKD could not be saved...

So those HK financial authorities made a crucial decision to get some good old (and hypocritical - to them) intervention going. They pumped money into the market, buying blue chip stocks to stop it up quickly, huge amounts (by those days' and my bank account's standards) of money flying around, staggering at the time.

Then someone heard: Hey, the Russian Rouble is going to be the next to fall! Look out! (All these rumours that, rumour has it pinned, Soros and the hedge funds had started.) Once again, for the second time this week the Hong Kong market was on the verge again of going into a tail-spin unless - Soros rubs hands - the HKD was sure to be unpegged.[*]

So the financial authorities pumped even more money in! Would it work? It couldn't be sustained, could it? HK would go broke!

It was en edgy time, to say the obvious.


So meanwhile, my flat-mate Scott, a young risk analyst with one of the big multi-letter companies, was watching this on his computer screen at work and on CNBC's Squawk Box, and got so spooked that he transferred all his money into USD before what he was certain was going to happen, did happen - the HKD crashing...

All of his money. He emptied everything in his HKD accounts in order to not lose a single penny when this impending disaster hit.

I do mean ALL of it. He had no HK money at all. He had also emptied his wallet of whatever cash he had and bought USD notes.

Can you imagine what that implications of that would be?


Next morning:

"Hey E@L, can you lend me some money for my taxi?"

[*thinks*] No fuckin' way, banker-wanker risk-idiot. Why don't ya walk, it's free. And its not far, we're in Hong Kong, not the Aussie outback, everything is 15 minutes walk away. It's stinking hot, it's raining, humidity 1G%... walk! You sell all your money and then you bot of me because you haven't any cash for a fucking taxi! Are you a moron? Do you think I am the moron? Why the fuck would you jump out the window to get rid of your CASH? You still have buy things in Hong Kong, idiot. Even if it crashed last night, it's not like the HKD$25 in my pocket is suddenly not going to get you into town this morning. Hand, forehead, slap. Total incredulity...

"Sure Scotty. Here ya' go. Okaaaaaaaaaaay... You buyin' the beers tonight?"


(some prescient words at the end of the linked article: " hunch tells me that the battle is not over and that a next attack is very likely, unless U.S. government realizes the danger of hedge funds to the world economy and set some regulations to control them." Ha!)

* [sorry first draft of this had an ellipsis of the crucial word "not" - the HKD was never unpegged.]


Skippy-san said...

Don't hold your breath waiting for the US to impose regulation our Galtian overlords. I'll be scratching to pay my bills again, when Tailgunner Ted decides to shut the government down rather than tax a gazillionaire.

expat@large said...

Bunch of effing seas. Jesus to read that article I linked to - Soros et al just wanted to bring down the world - mass unemployment, countries is financial ruin, children hungry and no schools or hospitals - what a bunch of evil-doing arseholes. Truly, if there if evil in this world, it's thumping heart of bloody fire is pulsing in the body incorporate of the Wall Street hedge-funds. How many super-yachts CAN they ski behind? Fuck me. It was all a fucking game to them.

BTW -- first draft of this had a misprint - I left out a crucial "not". The HKD was never unpegged.

It was great to see that was intervention and regulation in the notoriously laissez-faire HK that saved the day.

If that disaster had gone through, there's no way I would had been kept on in HK. I saw the shells of buildings in BKK at the time and that could have been HK...

And I'd be sweating over pregnant bellies, reluctant ovaries, alcoholic livers and angry gallbladders in a hospital dungeon somewhere back in Australia.

Lost in Melbourne said...

Phil I was discussing this all with a friend in HK last weekend, who is a journalist in the finance sector. She is young and a little naive of the way the game works but she had her own insights. What I see happening in the USA now is an attempt to copy the German model for playing the Game. The Germans now run Europe and have pulled it off without a shot being fired, we at least without the tanks riding across the fields of battle. The German banks fund the European Central Bank for the most part and it is their money being forced into the bailout funds. Once they have pushed in a loan at a given rate, the German government pipe up at a time when they feel the $Euro is high and announce they are worried about (insert name of their heavily indebted neighbour) and this crushes the $Euro again and makes their massive industrial sector once again artificially competitive. However the double win is that they re-rate the loans that they gave out at say 6% up to perhaps 8% as the neighbouring country has it's credit risk downgraded. Remember that the $Euro was the brainchild of Germany and they are essentially the sole beneficiary.

So the American's are looking at this game (perhaps through the use of the NSA hahaha) and they are jealous. How have the German's been able to grow and thrive while those around them crumble? So they are now also in the crisis invention Game. The shut down their government for a while, they keep printing currency forever, and they start the process of bringing the largely automated production of high tech good back into the USA. All of this is pulling down their $USD at the expense of the Chinese and they are also cunning and see their massive investment in $USD reserves being eroded, they are not happy about it, they are losing their biggest customer, their savings, and their cost advantage at being the factory to the rich consumers. Of course change being the only constant the Chinese need to evolve but no one likes their Game to end either do they?

All the while the morons who run Australia sit by and ponder how to keep up their tax breaks keep up the rapid sale of national assets, and keep up the super high salaries that make us a joke internationally, while the rest of the world take rent from us for most of our industry and utilities. Yes well done Hawk and Keating, deregulation was a stroke of genius, it's only a matter of days before the Utopian level playing field markets fully evolve. Bahaha, it would be funny if only the baby boomers had not sold out my country.

expat@large said...

Scott, I think that the games that have been going on with the volatility of the AUD indicate well enough that we are merely one of the many toy economies for the rich boys.

Keating floating the dollar was hardly "deregulation" at the level that was going on in US and UK. OK, I admit I don't know much about this...

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