Initiatives of AIIB and One Belt One Road should be commended

Comments on Amitav Acharya "Building Asian security", 25/01/2016

It seems that the author may be premature in the view reflected in the follow paragraph: “Similarly, China professes a deep interest in enhancing regional economic interdependence. But its own initiatives, the Asian Infrastructure Investment Bank (AIIB) and One Belt One Road, challenge long-standing modalities of regional economic cooperation.”

As Andrew Sheng described in his post on 23 January 2016, the AIIB is an initiative after the refusal by the US congress to ratify the 2009 G20 agreement to widen the voting rights distribution of the IMF. It is a rational reaction to an irrational behaviour by the US congress.

China’s One Belt One Road initiative should be commended as opposed to be labelled as something abnormal.

The world is changing. As it happens in many countries, reforms are necessary to progress. In that contest, new world modality is not necessarily wrong.

Further, while the majority of the following statement seems correct, it is unclear or confusing in the part “stability in the balance of power”. What does it mean in a changing world? If the world is changing and the relative power changes with it, is it still “stability in the balance of power”?

No one can hold the world not to change.

Bank capital reserves - need an appropriate balance

Comments on Rodney Maddock "Australian banks are strong; should we pay for them to be stronger?" 16/07/2015

I think it is important to get the balance right, as opposed to a moving goal post. It requires both the banks and the regulators to be flexible and responsive enough to deal with changes in the banking and finance industry, both in Australia and globally.It is not advisable for a capital reserve ratio that is too low to manage risks.

Equally, it is not advisable for the banks to hold capitals that are unnecessarily too high to be efficient.

Holding too little or too much capital is not good for the banks, the consumers, the economy and the regulators.There is no need to be too mechanical.

Further, the ratio may or should change with changes in real circumstances.

Reforming China's monetary system

Comments on Sara Hsu and Andrew Collier "China’s shadow banking tug of war", 17/09/2013, http://www.eastasiaforum.org/2013/09/16/chinas-shadow-banking-tug-of-war/

Shadow banking as well as the prevalence of ‘illegal fundraising’ in China reflects the severe deficiency of its monetary policy and management system. Given the role of money and credits in the economy, reforming the banking and finance system and its monetary management system in China should be a top priority.
From monetary policy point of view, a number of areas should be reformed. Firstly, monetary authority should not control both deposit and lending rates and should adopt the general practice of most central banks in the industralised countries.
Secondly, neither the government nor the central bank should force any banks to lend state owned entities at lower than the market rates to distort the banking system and monetary policy. This not will create a fair competition between the SOEs and other entities in the market place but also reduce the risks for banks.
Thirdly, China needs to transform the shadow banking into the formal banking and finance system and allow more entries of the private sector into the banking and finance system if they can meet regulation requirement.
Once the previous step is taken, it should strengthen its management of the banking and finance sector.

Reforming its banking and finance system will also have the added benefits of reducing corruption and organised crimes such as money laundering.
A better functioning banking system in China will also reduce the need for the Chinese people to physically store and carry a lot of cash.
The most important benefit is to allow much more efficient allocation of economic resources.

Creativity needed to financially enhance Aussies

Comments on Bill Gross "Paranormal economic activity", 7/01/2012, http://www.businessspectator.com.au/bs.nsf/Article/global-economy-interest-rates-US-Federal-Reserve-E-pd20120105-Q7W3Q?OpenDocument&src=sph&src=rot
I think the flooding of money by ECB, BOE, and Fed will either be hoarded by those financiers that need deleveraging, or spill over to other more promising and less risky countries/markets by some international hedging operators, or both.

Maybe the Aussie stock markets and bond markets will be one of the destinations for those QE money supplies.
It will be self-fulfilling, if enough money is flowing into a better market, because the amount can be very large.
If I could get money from the US, UK, or EU, I would definitely invest in Australia, selecting a time when the A$ is a bit lower to come in  and buy some shares and get out with a decent profit at a time when A$ is higher.
That would be a very excellent strategy.
The question Australians need to ask is why the Australian banks have been arguing that their financing costs from overseas financial markets are higher than the domestic money market where official interest rates are much higher than most of their counterparts overseas.
I was personally wondering that why there is no operators from Australia financiers to set up some bonds to be sold overseas and use the proceeds to provide cheaper loans in Australia.
Indeed, the Australian government perhaps should seize this opportunity to do so to benefit Australians by lowering the cost burdens for many Aussies who have mortgages or loans from the banks.

Asia financial reforms

Comments on Andrew Sheng "Asia must reform financial institutions in its own image" 13/01/2011, http://www.eastasiaforum.org/2011/01/13/asia-must-reform-financial-institutions-in-its-own-image/#comments

A few comments on the post.


Firstly, the following statement may not be correct: ‘In terms of the global architecture, the dollar and the euro will remain as global reserve currencies within the next two decades at the very minimum.’

Twenty years are a very long time. The underlying reason Shen used for that statement ignores the international dynamics and the rapid shifting in world economic weight and trade. The current lack of consensus on an Asian currency or currencies is likely to be very temporary.

Secondly, the idea of using a Tobin tax for fx transactions should at least be complemented with a tax refund mechanism for non-speculative transactions after they can be proved to be, to reduce the undue impact on market efficiency of such a tax

Thirdly, the ‘too big to fail’ dilemma should not be that hard to address. Shareholders and bank and financial executives must be held to account, no matter how big a bank or financial firm is. They must be made to pay for their mismanagement and / or neglect of duties. Moral hazard issue should never be allowed. The worst outcome for a country can only be nationalisation temporarily to prevent any financial fall out. If that does occur, it would wipe out all shareholders’ value, and allow both the authorities and shareholders to prosecute company executives for their neglect of duties and or mismanagement.

Swan's 'reforming' the banking sector

Comments on Michael Stutchbury “Package gives policy a bad name”, 13/12/2010, http://www.theaustralian.com.au/business/opinion/package-gives-policy-a-bad-name/story-e6frg9p6-1225969800721
Is this another grocery watch idea, RSPT idea or pink batts idea?

It is likely to increase the costs to consumers and mortgage holders in the longer run, because of the propping up of smaller non-banking organisations using taxpayers' money.

With Mr Swan at the helm of the nation's economic policies and reforms, how much can you expect, if the RSPT dramas and fiascos were of any guide?

Among the most recent Commonwealth Treasurers, where would people rant him in terms of competency, style and achieving good outcomes for the nation?

But I am not sure how to comment on Swan's legacy. To fair to him, he has been on the position for just three years by now.

Stable and diligent financial industries

Comments on Karen Maley “Who should pay for the GFC?” 1/04/2010, http://www.businessspectator.com.au/bs.nsf/Article/Who-should-pay-for-the-GFC-pd20100401-442RF?OpenDocument&src=sph

It is nonsensical to suggest that some banks and financial institutions have been bailed out in the GFC, every bank and financial institution should be punished.

Any financial reforms have to resolve the moral hazard issue of any reckless financial institutions.

The ultimate punishment is to have all shareholders and creditors value wiped out and possible criminal prosecutions for its key personnel, in case it cannot repay the government's costs of bailing it out.

Only in that way, every institution will have no illusion that they would be bailed out freely, and the financial system will also have security and order.

Different rules for finance and banking

Comments on Stephen Grenville “A post-GFC international framework for finance and banking”, 22/03/2010, http://www.eastasiaforum.org/2010/03/22/a-post-gfc-international-framework-for-finance-and-banking/

There may be a need for different set of rules to be applied to different types of banks and financial institutions.

For predominantly domestic banks, that the rules may be more relaxed and each country's authority can deal with them as they see fit, because there is not much international ramifications if a domestic bank failed.

For international banks, that is, they have extensive international operations, the rules should be international by nature, or subject to each and every countries rules where they operate.

So, overreacting and introducing unnecessarily harsh rules can be very harmful. They will certainly raise capital costs in many countries unnecessarily.

The point made by Grenville that most Asian banks including Australian banks worked well during the global financial suggests that not many changes will be necessarily needed for those countries.

Finance 001

Comments on Timo Henckel “Australia lifts its bank guarantees”, 11/03/2010, http://www.eastasiaforum.org/2010/03/11/australia-lifts-its-bank-guarantees/

I am not sure I haven't missed an important point in banking guarantees.

Why should a guarantee necessarily be related to the moral hazard issue?

Can't it be done in way that does its promised guarantee, but also severely punish the culprits, at least to the degree that deters moral hazard behaviours by the banks or financial institutions?

Why don't economists or policy makers see the possibility of a better approach than the conventional thinking of and approach to guarantees and improve such a policy?

For example, if a government guarantee for some sort is actually being used, then the government can make the agents involved pay a reasonable price up to the point of completely wiping out all its shareholders and creditors value, as well as potential prosecution of the relevant persons with responsibilities.

In that way, let’s say the normal types of bank depositors are protected and hence can avoid unnecessary bank runs, but the bank in question will have to pay a big price.

Is that too difficult to devise or design, or what?

I am not specialised in finance, but should that be called Finance 001?

If not broken, then don't try to fix it!

Comments on David Llewellyn-Smith “THE DISTILLERY: Full of holes”, 10/12/2009, http://www.businessspectator.com.au/bs.nsf/Article/THE-DISTILLERY-pd20091210-YKTQ3?OpenDocument&src=sph

The column's view on banking regulation is plainly silly. Did the financial crisis have a serious adverse impact on Australian banks as that had on the banks in either the US or UK for example?

If not, then why aren't Australian bank little different from the other banks?

Why do people want to impose unnecessary costs on banking and finance and reduce efficiency without real benefits?

Isn’t it a simple case of “if not broken why fix it?”

Are you a follower of the PM Rudd, just wanting a big government and increase regulations for the sake of regulations?

You got to be kidding and fooling yourselves!

Common sense and intelligence required

Comments on Alan Wood “Why mortgages no longer rate”, 10/12/2009, http://www.theaustralian.com.au/business/opinion/why-mortgages-no-longer-rate/story-e6frg9qf-1225808812458

While it is fair enough that when banks' funding costs go up their lending rates should go up too, there are 2 problems with a simplistic interpretation of that general principle.

The first one is that why it happened after the RBA's move and not happened when their costs really went up. That is just inexplicable and stupid on the banks' part. The RBA's move can only increase their funding costs by the amount of the rise by the RBA rate. It should not increase their other costs by that action per se.

Secondly, why can't the banks make a difference between the rates for existing borrowers and new borrowers? They may pass the full rise of the official rate to existing customers, but have a higher rate for new borrowers to discourage new lending.

After all, the banks are being silly and show no strategies and tactics.

Further the nation’s politicians including PM and Treasurer are also stupid, why didn’t they point that out clearly and frankly?

It may be a case that the businessmen in a country mirror the intelligence of their pollies!

G20 - helpful or unhelpful?

Comments on Uri Dadush “Four challenges in Pittsburgh for the G20”, 24/09/2009 http://www.eastasiaforum.org/2009/09/24/four-challenges-in-pittsburgh-for-the-g20/

Among the three important examples which go beyond the current crisis, the third one is likely to be the most difficult one. It is not a significant issue for quite a number of countries in the group that means there may not be enough incentive to have that on the agenda.

In a post crisis environment, it may be easier to achieve the second and the first ones.

There is enough momentum for the first one out of the UN summit meeting this week.

In terms of withdrawal of stimulus, the group is now more unhelpful than being helpful, because it should send a clear signal that while in many countries it is still too early to withdraw measures, the condition in some countries are such that their government should decide when and how to withdraw from stimulus, otherwise there will be a serious chance that they may do it too late that will accelerate inflation.

The group already has an adverse effect on some countries, say Australia. The Australian government is using the group to play domestic politics and delay withdrawal.

In terms of how to prevent future similar crisis, it is important not to over regulate the banking and finance industry to achieve financing efficiency and lower costs of capital. There may be some minimum international regulations / guidelines, and leave the rest to each country to make sure their banks are safe and efficient.

The worst thing is to have a group of unaccountable international bureaucrats to impose a set of excessive regulations in the wake of the crisis in the name of preventing another crisis that will significantly increase the costs of finance everywhere.

Banks in Australia have done through the crisis with little problems. In such a case, is there a need to tighten the regulations? The answer is definitely no. But the danger is that the Rudd government will do it nevertheless to fight the so called “neo-liberalism”, or “market fundamentalism”.

That will be a tragedy for Australia with higher interest rates than necessary.

Still a need for new macroeconomic tools

Comments on Alan Kohler “Policy without ammunition”, 22/07/2009, http://www.businessspectator.com.au/bs.nsf/Article/Out-of-the-game-pd20090722-U6SPS?OpenDocument&src=sph

There is a big gap in macroeconomics in terms of policy responses to such scenarios. The Fed, and some other central banking authorities have used quantity easing, a creative response that stabilised their and the world financial markets. The world avoided the complete shut-down of key national and the international banking system. That was good.

But now there is still a deep problem of how to get the economies going forward and avoid the Japanese experience of the lost decade in the 1990s, which requires equally creative thinking.

Economists or otherwise, people need to come up with new policy tools for dealing with the so called balance sheet recessions.

Foreclosure – preventing causes better than dealing with consequences

Comments on Robert Gottliebsen “Can't hold back the rising tide”, 1/07/2009, http://www.businessspectator.com.au/bs.nsf/Article/WallStreet-pd20090701-THS6A?OpenDocument&src=sph

The practice of mortgage and foreclosure in the US is different from that in Australia. Foreclosure has been more widespread in the US than here. It is hard to say which is more beneficial or harmful to the lenders involved.

The culture of foreclosure by individual lenders is no different from herd behaviour in a bear market. If you don’t do it and get out quickly enough, you may get stampeded and crushed and incur greater losses. It is like the prisoners’ dilemma.

If all lenders can come to an agreement and hold their fires, then the collective outcome may be better. But that needs everyone to do the same and few to breach the code.

Government’s intervention may help if the problems are not too severe and persistent. If the problems are very severe and persistent, then what the government does is to momentarily prevent the collapse of a dam that will eventually collapse. When the time of collapse comes at a later stage, the collapse may be more severe and the damage greater.

The US has already got the crisis and the crisis will still run its courses. No matter it is the lenders or the US government, they cannot got rid of all the pains, like foreclosure, without them being felt by many Americans. It is a painful process and this article just indicates that.

A better way for the government to do is to deal with the causes of foreclosure in the first place, to prevent the development of bubbles and to prevent lenders from doing malpractice in lending. While it is too late for the current crisis, it will be valuable for the future.