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Pastimes : Ask Mohan about the Market
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To: Rational who wrote (9124)11/23/1997 7:55:00 PM
From: Zeev Hed  Read Replies (1) of 18056
 
Sankar: Unless those US equities drop dramatically (and then it is too late), I fail to see why foreign companies will be forced to reduce their holding of such equities. Last time I checked, investments are carried on the books as assets (and in Japanese companies these are marked to market only quarterly or even less frequently). Selling assets will reduce the assets side of the balance sheet (even if the money is used to pay off some of the the liabilities). If they sold all their assets, the ratio will increase to infinity (zero assets but still 2/3 of the liabilities). It is inconceivable that a drakonian law will force all Asian companies over night to get their balance sheets to a 1:1 situation, If that was called for (and this will be a major deviation from the current standards of doing business in Asia), it will be a gradual step over a large number of years. If they required that within a short time all companies that do not have a 1:1 asset to liability ratio cannot go to the lending well, they will precipitate a wave of bankrupcies and a depression worse than 1929. The balance sheet of corporate America took a good 10 to 15 years to come to its current healthier condition. And many companies still have the ratio at much higher values than 1:1 and than, most they have to do to get loans, is pay a premium (and not too big for that ) over prime.

Zeev
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