Some have written to say why no updates ... markets like these what to write home la ... Nothing good to say, say nothing la. One thing is clear, its very difficult for markets to rise but when they fall, its very quick indeed. All I can say is that the sharper and faster the falls, the more pressure is put on EU to come up with a thorough solution. Till now, much of it have been band-aid types.
Following on before when I said EU will not let Greece default, well, now after thinking through, I think it will be best to let Greece default. However, before they do that, they MUST do a backstop for other troubled nations like Italy, Portugal, Spain ... You know that when Greece defaults, the contagion effects will paralyse the markets even more ... I am sure the EU knows that. Hence a super fund must be established to soak up all the next in line PIIGS sovereign bonds, provide sufficient funds to stave off any potential bank runs in PIIGS.
Currently the EU has set aside only 440bn euros to do that. Maybe enough for Greece but not the contagion effects. The rescue fund would now have to morph into a US TARP like fund, whereby in the event Greece defaults, the PIIGS can tap the fund to soothe fears.
Greece will have to be allowed to default because the political scene is not encouraging to push through the needed austerity measures. By means of a default, it just means allowing the country to negotiate a huge haircut on outstanding bonds and loans. Most creditors took a small haircut already but obviously the repayment is still way too large, we should be looking at 60 cents to the dollar - only by lowering Greece outstanding would that come to some sort of workability.
A US style TARP for EU should be in the region of 1.5 trillion euros. Its now not a matter of how much resources you want to commit, its a matter of restoring confidence. Confidence can be bought but not in drips and trickle, it has to do with perception. Hence the TARP fund must be sizable, whether you end up using it is another issue.
The bear is growling very loudly, but thankfully for Asia and much of Latin America, its only in share prices and not (yet) into the real economy. We should be grateful and thankful that we are seeing a full blown global market correction but not devastatingly affected. However, we need to consider why we are not affected, LUCK? Are we doing things properly enough to minimise the next correction? What if the correction was in China?
As a small country, we are at the mercy of global and regional markets. All the more reason that we need to shore up our finances and reinvest properly. We all know that leakages and wastage in Malaysia over the past 30 years, if properly invested in people and industry, would have put us at least just beneath HK and Singapore. We are lucky enough that DESPITE the wastages and leakages, we are still around, dropping but still around. How much longer can we still do that?
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