Recently, I've been reading the Warren Buffett's thoughts on investing. And, he said that "be greedy when others are fearful, and be fearful when others are greedy." In my opinion it's very true statement about investment. But, is it true about the banks?
The Security Exchange and Commission has launched investigation of fraud against the Goldman Sachs. The Goldman misled the investors/clients by not revealing all available information and risks of complex investment tool, Collateralized Debt Obligation(CDO). The bank has engineered with help of John Paulson, owner of John & Co Hedge Fund, and Mr.John had bet against collapse of CDO and took short position. Moreover, Mr.John payed USD15 million as fee to assemble the deal and find investors. Those investors were IKB, German institution, AIG and others. The IKB has lost USD150 million, the AIG was insurer of those CDOs. Nevertheless, the Goldman Sachs also lost $100 million due to inappropriate hedging. But, the Paulson & Co earned around USD 1 billion.
As we can see clients and partners of the bank had to carry a huge amount of losses. The bank didn't disclose the stake of the hedge fund, and the "clients" were sophisticated investors who relied on the bank.
What about other banks and institutions of the Wall Street? Are they operating ethically? These questions are subject to think and research.
Saturday, April 24, 2010
Sunday, April 18, 2010
Who is the Boss: Creditor or Debtor
The Chinese government is creditor of the U.S which had heavily invested into the U.S Treasury Debts,T-bills and others. Other creditors are Japan, Germany and other countries which have trade surplus or USD reserves. For example, the Chinese government holds roughly $800 million of T-bills, and the U.S federal government has almost $50 trillion in debt!!! I want to show the big picture clearly, 1 trillion is 1,000 billion. Yeah, it's a huge absolute amount. Investors, pundits and ordinary investors are worried about the debt of the U.S. Investors are taking worried to much on the value of USD and solvency of the U.S federal government. Does the U.S indebted?
I would say that $50 trillion debt is not a big amount relatively to assets of the U.S. Yeah, you did read it correctly a not a big amount. The U.S government also has balance sheet, like in corporations, its total assets equal to $111 trillion. If we calculate debt-to-equity ratio of the U.S is 83%, to corporation 70% is recommended.
Recently, I've read that people worried about the value of the USD, they were afraid that the Chinese government might dump it's T-bills and trigger collapse of the USD. It's a big myth, think a bit. If the Chinese dump their holdings, it would lead to over-supply of the T-bills, thus price would sink, where the Chinese would carry big losses, and the Federal Reserve of the U.S can easily manage this situation by buying long-term T-bonds. Here comes, that the Chinese are dependent on the U.S heavily and creditor is not the boss, but the U.S is the boss.
I would say that $50 trillion debt is not a big amount relatively to assets of the U.S. Yeah, you did read it correctly a not a big amount. The U.S government also has balance sheet, like in corporations, its total assets equal to $111 trillion. If we calculate debt-to-equity ratio of the U.S is 83%, to corporation 70% is recommended.
Recently, I've read that people worried about the value of the USD, they were afraid that the Chinese government might dump it's T-bills and trigger collapse of the USD. It's a big myth, think a bit. If the Chinese dump their holdings, it would lead to over-supply of the T-bills, thus price would sink, where the Chinese would carry big losses, and the Federal Reserve of the U.S can easily manage this situation by buying long-term T-bonds. Here comes, that the Chinese are dependent on the U.S heavily and creditor is not the boss, but the U.S is the boss.
Trade Protectionism of the U.S
The Western economists propagandized the "Free Trade." The concept free trade implies to trades among countries without any quote and tariffs. The main argument was competitive advantage of each nation, for example father of modern economics Adam Smith had supported the free trade. And, the Western world urged developing countries, the World Trade Organization was established to oversee trade activities and deal with disputes, in 1998.
Well, no use of telling who history of world trade. My point from this article is to point out how the U.S is following wisdom "Do What I tell you, Don't do what I do."
The U.S government imposed 15% tariff on Chinese made tyres. The argument was unfair competitive advantage of Chinese manufacturers: undervalued renminbi(the Chinese currency. Moreover, the Japanese automakers had accepted "voluntary tariff" on the cars. The Indonesian manufacturers had payed the same amount with the French manufacturers tariff of roughly $8 billion. Moreover, the U.S Congress is trying to impose more tariffs on the Chinese products if China doesn't establish fair value of the renminbi.
We don't know what will happen, whether countries start "trade war" or not, but it's going to hurt each of us.
Hence, the U.S propaganda of free trade is manipulated, like author is changing the content of book as he likes.
Well, no use of telling who history of world trade. My point from this article is to point out how the U.S is following wisdom "Do What I tell you, Don't do what I do."
The U.S government imposed 15% tariff on Chinese made tyres. The argument was unfair competitive advantage of Chinese manufacturers: undervalued renminbi(the Chinese currency. Moreover, the Japanese automakers had accepted "voluntary tariff" on the cars. The Indonesian manufacturers had payed the same amount with the French manufacturers tariff of roughly $8 billion. Moreover, the U.S Congress is trying to impose more tariffs on the Chinese products if China doesn't establish fair value of the renminbi.
We don't know what will happen, whether countries start "trade war" or not, but it's going to hurt each of us.
Hence, the U.S propaganda of free trade is manipulated, like author is changing the content of book as he likes.
Subscribe to:
Posts (Atom)
