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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Zeev Hed who wrote (3634)	5/17/1998 10:13:00 AM
From: Worswick	Read Replies (1) \| Respond to of 9980

Zeev good morning. A few words of sage advice from Paul Erdman. For Private Use only (C) Paul Erdman The Achilles heel By Paul E. Erdman, CBS MarketWatch Fri May 15 20:06:22 1998 SAN FRANCISCO (CBS.MW) -- In a speech delivered last week in Chicago, Alan Greenspan described lending between international banks as "the Achilles' heel of the international financial system." It is the financial crisis in Southeast Asia that provoked this statement. How exposed are we? Not very, when compared to Europe and Japan. Western banks have lent hundreds of billions of dollars to local banks in that region. Typical interbank lending involves a large American, Japanese or European commercial bank lending huge amounts -- short-term -- to banks in Korea or Indonesia or Malaysia. The potential problem arises from the fact that the local banks have been using this extremely short-term funding for: the financing of long -term, high-risk projects in real estate; the funding of medium-term loans to related industrial companies (i.e. members of the same "group"), regardless of their credit worthiness. Looming problem? When real estate collapses and industrial companies go bankrupt -- as has happened through out Southeast Asia -- liquidity dries up and local banks can no longer pay up when their interbank loans come due. The lenders react by rolling over their now non-performing loans indefinitely ... until the borrowing banks' go into bankruptcy. Then the international lenders will have no choice but to write off these interbank loans. At which point, if the numbers are large enough, they themselves might become "suspect." Thus Greenspan's warning. So how exposed are we? Not very, when compared to Europe and Japan. American banks' exposure in Asia is just $29 billion. The exposure of Japanese banks is $119, while European banks have pumped in $141 billion. All this contributes to the American profile as a safe haven and a magnet for investment funds from all over the world. It's not just inflows from 401(k)'s that are supporting our markets. The rest of the world has also been chipping in and will, no doubt, continue to do so. Between times despite the deterioration of civility west of and est of Amritsar, the burning of Jakarta something happened that was quite historic and possibly momentous last week. We are in the final stages of overthrowing Smoot-Hawley bill that seperated deposit taking institutions from investment banks and insurance companies. I asked a frien of mine in New York who is counsel to a large investment bank and was head of compliance at two or three of the largest US banks how far we were from the lending patterns of 1928-29 in New York. The answer: "With the overthrow of Smoot-Hawley..not far." My best to you,